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LEGISLATIVE OVERSIGHT
HEALTH INSURANCE BENEFITS
REVIEW COMMITTEE
FINAL REPORT
December 1993
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TABLE OF CONTENTS
Final Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Page 1
Background page 1
Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. page 1
Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. page 3
Recommendations '. . . . . . . . . . . . . . . .. page 6
Attachments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. A through N
Statutory Authority Attachment A
Meeting Notice/Minutes of 10/28/93 meeting Attachment B
Meeting Notice/Minutes of 11/30/93 meeting Attachment C
Excerpts from Auditor General's Performance
Audit of DOA Personnel Division Attachment 0
Overview of State of Arizona Health
Insurance Benefits Attachment E
Claims Audit of Interflex Attachment F
Intergroup's Response to Claims Audit Attachment G
Correspondence from AAUP Attachment H
DOA's Response to AAUP Attachment I
Intergroup's Response to AAUP Attachment J
DOA Materials Comparing Urban and Rural
State Employee Health Insurance Attachment K
Description/Historical Overview of Retiree
Health Insurance Program Attachment L
DOA Materials Concerning Retiree
Health Insurance Coverage ,. Attachment M
Letter Requesting Attorney General's
Opinion Regarding Reblending Issue Attachment N
The Committee consists of the following 12 members:
In addition to the Committee's prescribed on-going statutory duties, the Committee was
charged with reporting the legislature on the following issues before December 31, 1993:
Laws 1993, Chapter 176 established the Legislative Oversight Health Insurance Benefits
Review Committee to consider issues concerning state employee health insurance
coverage, including issues relating to the size of the risk pool and the type of coverage
provided to active and retired state employees.
FINAL REPORT
Rep. Brenda Burns
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Background
Composition
LEGISLATIVE OVERSIGHT
HEALTH INSURANCE BENEFITS
REVIEW COMMITIEE
1. the feasibility of grouping former state employees or former elected officials
or their dependents with officers and employees of this state and its
departments and agencies or the dependents of these employees as
necessary to obtain health and accident coverage at favorable rates;
2. any discrepancies between insurance plans offered in rural and urban
counties and methods to minimize on eliminate such discrepancies;
3. methods to allow former employees who terminated insurance coverage
provided by the Department of Administration between August 1, 1992 and
December 31, 1992 to re- enroll for the same or similar coverage in one
of the insurance programs provided by DOA; and
4. the feasibility of allowing any AHCCCS provider to respond to any request
for proposals or for bids initiated by DOA to procure health and accident
coverage for full-time officers and employees of the State and its
departments and agencies,
Speaker (or designee)
House
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Minority Party Leader (or designee) Rep. Eden
Three members appointed by the Speaker,
each from different legislative districts
and no more than two from the same political
party, as follows:
One member from a legislative district
whose boundaries lie wholly within a
county with a population of at least
500,000 persons Rep. Conner*
One member from a legislative district
whose boundaries lie wholly or partially
within a county with less than 500,000
persons Rep. Ortega
One member from a legislative district
whose boundaries include a state
university . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rep. Edens
(*Rep. Conner replaced Rep. Hershberger)
Senate
President (or designee) Senator Brewer
Minority Party Leader (or designee) Sen. Hardt
Three members appointed by the President,
each from differ.ent legislative districts
and no more than two from the same political
party. as follows:
One member from a legislative district
whose boundaries lie wholly within a
county with a population of at least
500,000 persons Sen. Soltero
One member from a legislative district
whose boundaries lie wholly or partially
within a county with less than 500,000
persons Sen. Springer
One member from a legislative district
whose boundaries include a state
university . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sen. Hermon
One member appointed by the Board of Regents . . . . . . . . . . . . . . . . Prof. Williams
One member appointed by the Supreme Court . . . . . . . . . . . . . . . . Connie Butchee
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Proceedings
The Committee held two public hearings for the purpose of considering the issues to be
reported on before December 31, 1993, as follows:
October 28, 1993
The Committee's first public hearing focused primarily on the performance of Intergroup.
One of the impetuses for legislation creating the Legislative Oversight Health Insurance
Benefits Review Committee were complaints concerning the performance of Intergroup's
Interflex program. Many state employees had selected coverage under Interflex with the
the impression it was an indemnity plan. They were dismayed to learn it is actually a
hybrid plan with both managed care and traditional fee for service features. Additionally,
legislators received numerous complaints about the quality of care received under the
Intergroup/lnterflex and about the discrepancies between coverage offered to state
employees residing in metropolitan areas versus those residing in rural areas. Another
common complaint was the issue of increasing health care costs.
Sandra Spellman, Senior Manager with Ernst and Young, presented a histOrical overview
of health care trends for the Committee, noting that managed health care was the trend
across the nation. Following Ms. Spellman's presentation, J. Elliott Hibbs, Director of the
Department of Administration presented an overview of health insurance benefits offered
to state employees. Mr. Hibbs noted that at the time he became director of DOA, the
State was faced with three problems concerning health care coverage for state
employees: 1) there was a lack of incentIve for competItive bids; 2) employees were not
reqUired to make cost conscious decisions about their health coverage; and 3) there
was not suffIcient managed care options in rural communities. Mr. Hibbs went on to
recount how these three problems affected decisions made at the time contracts were
let for the current plan year and to discuss the coverage options available to state
employees.
Mr. Hibbs acknowledged that there were indeed problems with Intergroup's Interflex
program and that DOA was going to impose sanctions on Intergroup for failing to meet
certain performance standards prescribed in their contract with the State. He explained
that when setting the penalty amount, DOA had taken into consideration that there were
mitigating circumstances surrounding Interflex's failure to meet cert8in performance
standards. Mr. Hibbs also informed the Committee that DOA was going to submit a
RFP for indemnity coverage for employees in Maricopa and Pima counties.
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The CommIttee heard next from Gary Petersen, Consulting Actuary with the Wyatt
Company, who summarized the Claims Audit of Interflex in which it was found Interflex
had failed to meet certain performance standards specified in its contract with the State
and which Mr. Hibbs had referenced in his remarks about imposing sanctions on
Intergroup.
Rick Barrett, President and CEO of Intergroup Health Care Corporation, responded to
the Claims Audit and to complaints rendered against Intergroup and the Interflex
program, noting the following: 1) only 3% of state employees were in fact enrolled under
the Interflex program; 2) the Interflex plan had in fact failed to meet the prescribed
criteria, some of it through no fault of their own; 3) Intergroup will strive to make
improvements where needed; and 4) Intergroup remains committed to providing the best
health care at a reasonable cost.
The Committee heard next from Ruth Kolb Smith, Chairman of the Arizona Conference
of the American Association of University Professors (AAUP) Benefits Committee. Mrs.
Smith and other members of AAUP had a number of complaints and recommendations
for improving the health care benefits offered state employees.
The major areas of complaint and resulting recommendations expressed by AAUP and
other persons who testified on their own behalf were the follOWIng:
1) they requested a true indemnity plan be offered to all state employees anci
that the costs for this more expensive coverage be subsidized by the State
and/or employees;
2) they wanted Intergroup to meet certain performance standards and to be
sanctioned for not having done so previously;
3) they wanted quality of care standards prescribed in any contract for state
employee health insurance;
4) they wanted state employees represented on all groups having input into
decisions involving health insurance coverage for state employees; and
5) they requested better information be made available to state employees
concerning their health insurance coverage.
[Refer to Attachment B for minutes of the October 28, 1993 meeting]
November 30. 1993
During the Committee's second public hearing, the Committee adopted
recommendations based on testimony received at the October 28, 1993 meeting and
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proceeded to receive testimony concerning other issues the Committee was charged
with reporting on before December 31, 1993.
Bill Bell. Assistant Director of DOA's Personnel Division, gave an overview comparing
health insurance benefits available to state employees in rural and urban counties. The
Committee was charged with looking at this issue primarily because legislators had
received complaints from state employees residing in both rural and metropolitan areas
that their health insurance options were not the same nor even comparable. The
Committee discussed how contracts are let (ie. on a statewide versus regional basIs)
and the merits and drawbacks of each approach.
The Committee next considered issues affecting health care coverage offered through
DOA to retired state employees. This became an issue for consideration by the
Legislature during the 1993 session and as a study item for this Committee as a result
of a changp, in policy on the part of DOA concerning retirees whereby DOA decided to
"unblend" retirees from the active pool for the purpose of procuring health insurance.
DOA based its decision on the following: 1) statutory interpretation; 2) an informal
Attorney General's opinion: 3) cost containment considerations: and 4) maintaining panty
with other state retirees. [Note: Unlike other state retirees who received health Insurance
coverage under the program administered by ASRS. retirees receiving coverage through
DOA were having their health care costs subsidized twice: a) their state retirement
system was paying the prescribed subsidy amount; and b) state actIve employees were
reportedly paying approximately $4.6 M more in premiums to offset retirees' higher
health Insurance costs.) This change in policy resulted in substantially hIgher health
insurance costs for state retirees receiving coverage and an outpouring of negative
publicity with the call for legislative intervention.
Staff provided a description and historical overview of the Retiree Health Insurance
Benefit Program established by the Legislature in 1988 to assist state retirees with their
health insurance costs. [Refer to Attachment L] The Committee also heard from DOA
and the Arizona State Retirement System (ASRS) concerning their coverage of state
retirees. Based on testimony received, the Committee recommended "reblending'
retirees with the active pool for the purpose of procuring health insurance coverage for
state employees and further recommended that any retirees who were previously
covered under DOA when the decision was made to separate retirees as a distinct
group and who transferred to other coverage (either through the State or a private
carrier) should be permitted to re-enroll under coverage administ.ered by DOA The
Committee requested a formal opinion from the Attorney General's Office concerning the
retiree reblending issue.
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The Committee recommended deferring the final issue it was charged with looking at
concerning AHCCCS and state employee health insurance until a later time.
[Refer to Attachment C for minutes of the November 30, 1993 meeting.]
Recommendations
The Committee made the following recommendations:
Recommendations based on October 28. 1993 meeting:
Re: Indemnity Coverage
1. DOA should offer an indemnity plan to all state employees.
2. State and/or employee subsidization of a more costly indemnity plan
should remain an issue for further discussion by the Committee.
Re: RFP Process
1. Specific guidelines concerning quality of care should be included in any
RFP concerning state employee health insurance coverage.
2. The Committee should be allowed to have input into determining the
contents of an RFP for state employee health insurance coverage.
3. Public notification should be given of pre-bid conferences held to discuss
state employee health insurance contracts.
Re: Contracts
1. DOA shall provide penalties for noncompliance of contract
provisions/standards within the time periods specified in the contract.
2. Specific performance standards concerning quality of care should be
included as part of the contract.
3. DOA shall provide quarterly reports on the performance of contracted
insurers to the Committee for review.
Re: Information
1. DOA should provide better, more accurate Information to state employees
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about their coverage through the DOA health newsletter, seminars and
other means.
2. State employees should be represented on all groups having input into any
decisions regarding state employee health insurance coverage.
Re: Other Recommendations
1. DOA should examine the feasibility of expanding the two-tiered approach
to coverage.
2. DOA should look into the feasibility of allowing larger quantity purchases
of prescription medication by insurance subscribers.
Recommendations based on November 30, 1993 meeting
Re: Rural and Urban Coverage
1. DOA should solicit bids for state employee health insurance coverage on
a statewide basis.
Re: Retiree Coverage
1. Retirees covered through DOA should be reblended with the active state
employee pool.
2. A formal opinion from the Attorney General should be requested
concerning the reblending issue.
3. Retirees who were previously enrolled under health insurance coverage
offered through DOA at the time the decision was made t? separate
retirees as a distinct group and who transferred to other coverage (either
through the State or a private carrier) should be permitted to re-enroll
under coverage administered by DOA.
Re: AHCCCS Coverage
1. Discussion of this issue should be deferred to a later time.
Staff was asked to prepare legislation accordingly to implement the Committee's
recommendations.
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ATTACHMENT A
Statutory Authority
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LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEPITS REVIEW COMMITTEE
(A. R. S. 38-655)
(Authorized by Laws 1993, Chapter 176)
Laws 1993, Chapter 176:
Sec. 4. Title 38, chapter 4, article 4, Arizona Revised
Statutes, is amended by adding section 38-655, to read:
38-655. Legislative oversight health insurance benefits
review committee
A. The legislative oversight health insurance benefits review
committee is established consisting of the following members:
1. The speaker of the house of representatives, or his
designee.
2. The president of the senate, or his designee.
3. The leader of the minority party of the house of
representatives, or his designee.
4. The leader of the minority party of the senate, or his
designee.
5. Three members of the house of representatives who are
appointed by the speaker of the house of representatives, no more
than one of whom shall be from the same legislative district and no
more than two of whom shall be members of the same political party.
One member shall represent a legislative district whose boundaries
lie wholly within a county with a population of five hundred
thousand or more persons, one member shall represent a legislative
district whose boundaries lie wholly or partially within a county
with less than five hundred thousand persons and one member shall
represent a legislative district whose boundaries include a state
university.
6. Three members of the senate who are appointed by the
president of the senate, no more than one of whom shall be from the
same legislative district and no more than two of whom shall be
members of the same political party. One member shall represent a
legislative district whose boundaries lie wholly within a county
with a population of five hundred thousand or more persons, one
member shall represent a legislative district whose boundaries lie
wholly or partially within a county with less than five hundred
thousand persons and one member shall represent a legislative
district whose boundaries include a state university.
7. One member appointed by the board of regents.
8. One member appointed by the arizona supreme court.
B. The speaker of the house of representatives and the
president of the senate shall serve as cochairmen of the committee.
C. The committee shall meet at least once a year and may hold
meetings at such times determined to 6e necessary by either
cochairman or the cochairmen of the committee for the purpose of
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considering issues concerning state employee medical and dental
insurance coverage, including issues relating to the size of the
risk pool ana the type of coverage provided to state employees.
D. The director of the department of administration shall
inform the committee of any changes being considered by the
department with respect to a request for proposals for state
employee medical and dental insurance coverage, including decisions
affecting the size of the risk pool and the type of coverage
provided to state employees.
E. The director of the department of administration shall
brief the committee in executive session about the contract that
the department intends to award for state employee medical and
dental insurance coverage. Information provided in executive
session shall remain confidential until the contract award is made
in compliance with title 41, chapter 23.
F. Members of the committee appointed pursuant to subsection
a, paragraphs 7 and 8 of this section, shall serve two year terms.
G. Members of the committee are not eligible to receive
compensation for their services but are eligible to receive
reimbursement for their expenses under chapter 4, article 2 of this
title.
Th. co..i~~•• T.rmin.~••: ongoing.
Sec. 5. Legislative oversight health insurance benefits
review committee; additional duties;
recommendations
A. In addition to the duties specified pursuant to section
38-655, Arizona Revised Statutes, as added by this act, the
legislative oversight health insurance benefits review committee
~al~ .
. ~ study and make recommendations to the,legislature on the
feasibility of grouping former state employees or former elected
officials or their dependents with officers and employees of this
state and its departments and agencies or the dependents of these
employees as necessa~ to obtain health and accident coverage at
favomle rates.
2 Identify discrepancies between insurance plans offered in
rura and urban counties and recommend to the legislature methods
to m~''mize or eliminate such discrepancies.
Identify and recommend to the legislature methods to allow
form employees who terminated insurance coverage provided by the
department of administration between August 1, 1992 and December
31, 1992 to reenroll for the same or similar coverage in one of the
insurnce programs provided by the department of administration.
4 Study and make recommendations to the legislature on the
feas ility of allowing any Arizona health care cost containment
system provider to respond to any request for proposals or for bids
initiated by the department of administration to procure health and
accident coverage for full-time officers and employees of the state
and its departments and agencies.
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Members:
1- (R) B. Burns Speaker, or designee, Cochair
2. (R) Brewer President, or designee, Cochair
3. (D) Eden House Minority Leader, or designee
4. (D) Hardt Senate Minority Leader, or designee
B. Recommendations made pursuant to subsection A of this
section shall be submitted to the legislature on or before December
31, 1993.
Section 5 of this act is repealed trom and atter January 1, 1994.
House Members Appointed April 1993.
Three members of the senate who are appointed by the president
of the senate, no more than one of whom shall be from the same
legislative district and no more than two of whom shall be members
of the same political party. One member shall represent a
legislative district whose boundaries lie wholly within a county
with a population of five hundred thousand or more persons, one
member shall represent a legislative district whose boundaries lie
wholly or partially within a county with less than five hundred
thousand persons and one member shall represent a legislative
district whose boundaries include a state university.
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Senator
Senator
Senator
Representative
Representative
5. (R) Edens Representative
6. (R) Conner
7. (D) ortega
8. (R) Springer
9. (R) Hermon
10. (D) Soltero
Three members of the house of representatives who are
appointed by the speaker of the house of representatives, no more
than one of whom shall be from the same legislative district and no
more than two of whom shall be members of the same political party.
One member shall represent a legislative district whose boundaries
lie wholly within a county with a population of five hundred
thousand or more persons, one member shall represent a legislative
district whose boundaries lie wholly or partially within a county
with less than five hundred thousand persons and one member shall
represent a legislative district whose boundaries include a state
university.
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11. Prof. Frank ~4i 11 i ams Member appointed by the Board of Regents
12. Connie Butchee Member appointed by the Arizona Supreme
Court
STAFF: Hardy
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ATTACHMENT B
Notice/Minutes of 10/28/93 Meeting
10/21/93
ARIZONA STATE LEGISLATURE
I N T E RIM ME E TIN G NOT ICE
AGENDA
Representative Brenda Burns
Cochairman
Representative Eden
Representative Edens
Representative Conner
Representative Ortega
Senator Jan Brewer
Cochairman
'Senator Hardt
Senator Hermon
Senator Springer
Senator Soltero
Connie Butchee, Supreme Court appointee
Professor Frank Williams, Board of Regents appointee
Open to the Public
LEGISLATIVE OVERSIGHT HEALTH INSURANCE BENEFITS REVIEW COMMITTEE
1. Call to order
2. Discussion of committee's purpose and scope of first meeting
3. Presentation - Historical overview of health care trends
4. Presentation by DOA - Overview of state employee health insurance
benefits .
5. Presentation by the Wyatt Company ~ Summary of the Claims Audit of
Interf1ex
6. Presentation by Intergroup
7. Presentation by the American Association of University Professors, AZ
Conference, Benefits Committee
8. Public Testimony
9. If time permits - Presentation by the Department of Administration
comparing hea~th insurance benefits offered state employees in rural
and urban counties
10. Schedule next meeting
11. Adjourn
MEMBERS:
PLACE: House Hearing Room 3
SUBJECT: Review of State Employee Health Insurance Benefits
DATE: Thursday, October 28, 1993
TIME: . 10:30 a.m.
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Members Absent
Members Present
Speakers Present
Representative Eden
Senator Brewer, Cochair (Excused)
NOV 05 1993
RECEIVED
CHI~~ CLERK'S OFFICE
Minutes of Meeting
Thursday, October 28, 1993
House Hearing Room 3 - 10:30 a.m.
ARIZONA STATE LEGISLATURE
Forty-first Legislature - First Regular Session
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
10/28/93
Connie Butchee, Supreme Court Appointee
Representative Conner
Representative Edens
Senator Hardt
Senator Hermon
Representative Ortega
Senator Soltero
Senator Springer
Professor Frank Williams, Board of Regents Appointee
Representative B. Burns, Cochair
Sandy Spellman, Senior Manager, Ernst &Young
J. Elliott Hibbs, Director, Arizona Department of Administration (DOA)
Gary L. Petersen, Senior Consulting Actuary, The Wyatt Company
Rick Barrett, CEO, Intergroup Healthcare Corporation
Ruth Kolb Smith, Chair of the Benefits Committee, Arizona Conference of the
American Association of University Professors, Tucson
Dr. John Sullivan, President and Medical Director, University Physicians,
University Medical Center, Tucson
David Mendoza, Legislative Director, American Federation of State, County and
Municipal Employees (AFSCME)
Jacqueline Sharkey, Vice Chair of the Benefits Committee, Arizona Conference of
the American Association of University Professors (AAUP), Tucson
Susan Gallinger, Director, Department of Insurance (001), (submitted written
note)
(Tape 1, Side A)
The meeting was called to order at 10:35 a.m. by Cochairman B. Burns and roll
call was taken.
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Norma Greer, Researcher, Benefits Committee, Arizona Conference of the American
Association of University Professors (AAUP) , Tucson
Dr. Carol Bernstein, President, American Association of University Professors
(AAUP) , Tucson •
Anne Schutte, Faculty Associate, Arizona State University (ASU) , Tempe,
representing herself
Dr. Harvey A. Smith, Professor, Arizona State University (ASU) , Tempe,
representing himself
Dr. Mel Firestone, Associate Professor, Arizona State University (ASU), Tempe,
representing himself
Robert E. McConnell, Tucson, representing himself
Jane Baez, Motor Vehicle Customer Service, Flagstaff, representing herself
Ruth Stokes, Tucson, representing herself
Vernette Fitzpatrick, Tucson, representing herself
Art Weese, Flagstaff, representing himself'
Dr. Robert J. Letson, University of Arizona Retirees Association Legislative
Committee, Tucson
Louise Muir, representing herself
Tedde Scharf, Associate Director, Disabled Resources, Arizona State University
(ASU) , Tempe
Jim Hemauer, Senior Program Coordinator, Arizona State University (ASU), Tempe
Sherry Santee, Physical Therapist, Tucson, representing herself
Carol Long, representing herself
Mary E. Green, Professor Emerita, Arizona State University (ASU), Tempe,
representing herself
Dr. David W. Smith, Chair, Legislative Committee, University of Arizona, Tucson
Roger Carter, representing himself
Carole Dow, representing herself
Eli Kaminsky, Professor Emeritus of Political Science, Arizona State University
(ASU) , Tempe, representing himself .
Christy Bison, Tempe, representing herself
Marianne Alcorn (submitted copy of remarks in lieu of testifying)
Guest List (Attachment 1)
PRESENTATIONS
Mrs. Burns stated that she anticipates this Committee in the future to meet on
an annual basis, just prior to the signing of the contract for health insurance
for State employees. She said that in the meantime, however, in order for the
Committee to have a better understanding of what has transpired and future
options available in health care coverage for State employees, today's meeting
will include an overview of the changes being made in health care, a presentation
by the Department of Administration (DOA) citing what health insurance is
available to State employees, and public testimony from State employees about
their concerns with Intergroup and Interflex.
Sandy Spellman, Senior Manager, Ernst &Young, with the aid of slides, presented
a hi stori ca1 perspective and trends in managed care. She noted that in the
1930's Blue Cross and Blue Shield Plans were among the first to use the concept
of insurance for health care. The national HMO (Health Maintenance Organization)
Act of 1973 offered federal monies for development and operation of HMO's and
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
2 10/28/93
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required employers to offer an HMO option to their employees. In 1982, Arizona
became the first state in the nation to pass enabling legislation to provide
managed care, which is the AHCCCS program (Arizona Health Care Cost Containment
System). From that date until present, Arizona has seen an incredible increase
in interest and penetration of managed care in the State, which is also
indicative of what is happening around the country, and most of President
Clinton's health care proposals include a managed care provision.
Ms. Spellman explained that in a managed care plan, health care providers assume
the financial risk for offering health care services to their patients. If
expenses exceed revenues, the managed care plan is at risk for the loss, which
may be shared with the physicians and hospitals included in the arrangement.
In an indemnity plan, the insurance company takes the sole financial risk. Ms.
Spellman pointed out that the managed care plan increases provider incentive to
control costs and offer health maintenance aod preventative care for the patient.
She added that most managed care plans use a primary physician for contact of
care and said that statistics show that physician contacts in an HMO environment,
per capita, r~nk more than 77 percent below those contacts in an indemnity plan.
While the indemnity plan was once the most popular of the two (indemnity and
managed care), by 1988 the number of people choosing an indemnity plan had
decreased by 50 percent.
Ms. Spellman opined that the trend across the nation is toward managed health
care. She said that there are many common elements among the various plans being
-considered by Congress. Among the most common is the managed care element. At
this point, a managed care plan is the preferred option in President Clinton's
plan. She said, too, that the trend in Arizona closely parallels national data,
with the penetration of managed care ranking in the commercial sector from 30
percent to 60 percent, depending on what is included. She also noted that 100
percent of Medicaid patients enjoy managed care health insurance. Ms. Spellman
stated that most of the national proposals, and President Clinton's in
particular, provide for an in-plan and ~ut-of-plan rate.
Mrs. Burns raised a concern that managed care plans Jack incentives for good
patient care. Ms. Spellman conceded that while this historically has been a
concern shared by many, the cost containment element does require looking at the
resource consumption side of the issue, and said that studies indicate that
sometimes the over-abundance of medical services can be just as much a concern
as a lack of service. She agreed, however, that patient care is of primary
importance.
J. Elliott Hibbs. Director. Arizona Department of Administration (DOA) , stated
that DOA is very sensitive to the importance of the health benefits program, for
both employees and the taxpayers of the State. He said that Bill Bell, Assistant
Director, in charge of the Personnel Division; Mary Ann Knight, in charge of the
Benefits/Insurance Unit; and Stuart Goodman, Legislative Liaison, are available
to assist employees with any problems they have with their insurance coverage.
Mr. Hibbs said that in March 1992, when he assumed leadership of DOA, he found
that the State had rapidly growing employee health insurance expenses, with a
potential $44 million increase in costs to be paid either by the State or its
employees. There were three problems to be addressed at that time: 1) a lack
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of incentive for competitive bids; 2) employees were not required to make cost
conscious decisions about their health coverage; and 3) while there were some
indications that there was some managed care in rural communities, that actually
was not true. The result was a potential $44 million increase at a time when
the State was trying to balance the bUdget with limited revenues. He said that
with some programs being cut and employees not receiving a pay increase, it was
felt that employees would not be able to withstand a substantial increase in
health care costs. Therefore, the State's health care contract was put out for
bid. This provided competition among the various providers. The result of the
new contract is that DOA has begun to manage rural health care costs more
effectively than ever before and employees have now become responsible consumers
of health care. By shifting to lower-cost programs, instead of an increase of
$44 million, employee health care premiums have become stabilized.
Mr. Hibbs explained that because the AugJ.lst 1 renewal date with an open­enrollment
period held in June and July is inconvenient for many employees, the
start date for the policy period has been changed to October 1 of each year,
giving employees a better opportunity for making informed decisions. He added
that in virtually every county in the State there is now an opportunity to enroll
in an HMO plan. He noted, however, that the Flagstaff area is the only area in
the State without an HMO opportunity.
Mr. Hibbs stated that through complaints received throughout the past year, DOA
learned that coverage of durable medical equipment was omitted from the new
contract with Intergroup. Intergroup has now restored that coverage and made
it retroactive to the beginning of the plan. Mr. Hibbs reported that among other
improvements to the plan under consideration is an expansion of the tiered system
beyond the current two tiers for individual and family coverage. There are
multi-tiered systems that can provide for individuals, two people (state employee
and spouse), three people (state employee, spouse and child), etc. Also, DOA
would like to invite bids on an indemnity program. Currently, there is no
indemnity option for employees since Interflex is not a true indemnity program. . .
Mr. Hi bbs said that although providers were invited to bid on an indemnity" u1
program in the last bid process, no one did, so no contract was awarded for this
option. He added that although DOA believes this option will be very high cost,
the Department would like to be able to offer this plan to State employees. He
assured the Committee that DOA wi 11 gi ve seri ous cons iderat ion to any other
opt ions that may be recommended to improve the quality of the State health
benefits program.
Mr. Hibbs commented on concerns that have been raised about the performance of
the Interflex program. He noted that only 3 percent (1,388) of State employees
are enrolled in this program. Mr. Hibbs cited the standards that must be adhered
to by Interflex or risk assessment of penalties. Payment of claims must be paid
within fourteen days, with a 95 percent accuracy rate on technical matters and
99 percent accuracy on dollar amounts of reimbursements. Mr. Hibbs said that
for a period of time Interflex was not meeting these standards. According to
an audit conducted by The Wyatt Company, Interflex was in violation of all of
these standards for part or all of the plan year. However, DOA determined that
there were mitigating circumstances that should be taken into consideration
before penaIt ies were assessed. There were some commun icat ion problems and
problems in transferring employee information to the new program. There also
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was the issue of coverage for durable medical equipment that had to be resolved
and claims for those items that had to be reexamined. All of these things
contri buted to di ffi cult ies in gett i ng the new program operat i ona1. DOA
determined that it would be appropriate to assess penalties if the plan did not
measure up to standards in the last six months of the year. The Wyatt Company
audit revealed that during that last six months, two standards were not met for
the full six months and three standards were not met for four of the six months.
Mr. Hibbs said that DOA has informed Intergroup that penalties have been assessed
for the violations in the Interflex plan. He added that DOA will continue to
monitor Interflex and take whatever appropriate action is necessary to ensure
that the standards in their contract are being adhered to.
Mr. Edens stated that he has gotten stacks of letters about the service being
provided by Interflex. He admonished Mr. Hibbs that discussions involving the
problems with Interflex have been going on since last December and said that he
is concerned that it has taken until October 1993 for DOA to apply sanctions on
Interflex for its violations of contract standards. He submitted that in order
to represent both employees and the State in the best possible manner, it is
important that DOA ensure that providers are in compl i ance with contract
standards and DOA's reaction to contract violations be better than one year.
He stressed that when the bid goes out for the new indemnity plan, providers must
be advised that adherence to contract standards is expected or the provider will
be penalized.
Mr. Hibbs responded that this is the first time that DOA has ever issued a
penalty against a provider. He pointed out that DOA has met with Intergroup and
di scussed the probl ems that have occurred. He opi ned that Intergroup is
concerned about the performance of the Interflex plan and has worked hard the
past year to address the problems.
Mr. Edens rei terated that the State needs to set a pattern of enforci ng
contracts.
Mr. Ortega asked if the State has a basic benefits package that goes out to bid.
Mr. Hibbs answered that while some specific levels of coverage are required, in
order to give potential bidders an opportunity to submit innovative. approaches,
he thinks it is better to allow flexibility and invite bids on a variety of
packages rather than restrict bidding to just one package.
Mr. Ortega asked Mr. Hibbs, in his roJe as Director of DOA, if he feels it is
his role to implement public policy or determine public policy. Mr. Hibbs
replied that he thinks he only has the ability to determine public policy in the
areas the Legislature has given him the right to do so.
Senator Hardt protested Mr. Hibbs' statement that there are HMO plans in every
county. Mr. Hibbs answered that according to the information DOA has, there is
an HMO plan available in every county.
Senator Hardt said that he is concerned about why there aren't more bidders on
the health benefits package. Mr. Hibbs said that while he doesn't know the
reason in every case, in 1992, when the current contract went out to bid, it was
at the same time that AHCCCS was gatheri ng bids for thei r program. Many
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companies were working on bidding the AHCCCS contract, so perhaps if the timing
had been different, there may have been more bidders on the employee benefits
package.
Senator Hardt asked Mr. Hibbs if any consideration has been given to allowing
AHCCCS to bid on the employee benefits package. Mr. Hibbs responded that AHCCCS
was given an opportunity to bid on the package in 1992. He said that while DOA
is not suggesting moving State employees into AHCCCS, there may be an advantage
in using the same type of insurance companies that provide their insurance
coverage and in utilizing the expertise of AHCCCS people in negotiating
contracts.
Mrs. Burns asked if the sanctions that have been applied to Interflex were for
the full amount allowable under the contract. Mr. Hibbs answered affirmatively,
saying that the penalty assessed to Interflex for the last six-month period was
in the full amount allowable of $51,839 under the terms of the contract.
Mrs. Burns asked Mr. Hibbs when the penalty payment is due. Mr. Hibbs replied
that a letter was sent to Interflex notifying them that the penalty payment is
due by November 15, 1993.
Mrs. Burns said that she, too, has gotten stacks of letters with heart-wrenching
stories about the quality of care being provided by Interflex. She added that
many people want the opportunity to have an indemnity plan, and said that she
is pleased such a plan will be offered in the future. She also stated that a
tiered system was suggested in some of the letters.
(Tape 1, Side B)
Mr. Conner raised the question of how employees are notified about the changes
and programs available in the benefits package. Mr. Hibbs replied that DOA
issued a newsletter containing information about the benefits that are available
to State employees. He said that meetings were also held throughout the State
and an Employees' Advisory Committee assists employees with questions about their
insurance coverage.
Mr. Edens asked Mr. Hibbs for the amount of the annual premium paid to
Intergroup. Mr. Hibbs said that while he doesn't have that information at this
time, he will provide the amount to the Committee later.
Mr. Edens inquired as to how the Committee will keep abreast of problems and
assess quality control for providers in the future. Mr. Hibbs replied that the
Committee only has to ask and DOA will provide whatever information is requested.
He noted, however, that the benefits package contract cl early states what
penalties will be assessed and how; it is not something that can be assessed at
wi 11.
Mr. Edens submitted that there should be some type of regular reporting so that
the Committee can know what the providers are doing. Mr. Hibbs said that if that
is what the Committee would like, he would be happy to provide that information.
He added that within six months another audit of Interflex will be conducted and
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DOA will continue to monitor them. If it is found that Interflex is not
complying with contract standards, appropriate action will be taken.
Mrs. Burns suggested she and Mr. Edens work with Mr. Hibbs to determine what data
would be appropriate to be included in the report DOA will provide the Committee.
Mrs. Burns noted that most of the penalties being assessed on Interflex are in
regard to how quickly claims are being processed. She said that she is more
concerned with the quality-of-care issue. She added that some of the concerns
expressed in the letters she has received relate to procedures that weren't
approved. She submitted that there should be some quality control on this kind
of issue. Mr. Hibbs noted that there have been some occasions when employees
have sat down with Intergroup and worked out thei r probl ems to the mutual
satisfaction of the provider and employee.
Gary L. Peterson. Senior Consulting Actuary. The Wyatt Company, stated that of
the four health-care claims audits The Wyatt Company has performed over the past
four years, one was on Intergroup. He noted that Intergroup was very cooperative
with the auditors and agreed with the results of the audit. He explained that
the audit involved 300 claims in the Interflex program. These claims were
evaluated for turn-around time and whether they were processed properly, and also
correctness of diagnosis and date of service. Mr. Peterson said that of these
300 claims, 23 errors were identified (7.7 percent) in the area of diagnosis and
date of service, while the State's performance standard is 95 percent. In the
area of errors in payments, 34 errors (11.3 percent) were identified, averaging
$24 each, while the performance standard is 95 percent. At $24 each for 34
errors, the net payment error was $818, out of a total payout of $24,638 (3.3
percent), while the performance standard is 100 percent. The performance
standard for turn-around time in payment of claims is fourteen days. Of the 300
claims audited, 100 were paid in fifteen days or more.
Rick Barrett. CEO. Intergroup Healthcare Corporation, distributed a copy of his
remarks (Attachment 2), relating to the history of Intergroup's relationship with
the State. He noted that Intergroup first received the award to service State
employees in 1984. He said that 5,000 employees joined the plan that year. By
1988 that figure rose to 21,000, in 1989 it grew again to 29,000, and in July,
1992, 33,500 State employees had chosen Intergroup's HMO, even though they were
offered other choices, including the subsidized indemnity plan. At this time,
the State's ability to support the subsidy to the indemnity plan became
unbearable, the reason being, affordability.
Mr. Barrett refuted the accusations against Intergroup of poor service and bad
doctors, saying that he doesn't think such accusations have much basis in fact.
He submitted that in 1992, the State made a courageous decision to move toward
a true managed competition model. By August of 1992, Intergroup's membership
had grown from 33,500 to 43,650. He said that he doesn't think this would have
been possible if the allegations being hurled at Intergroup were true. He noted
that Intergroup, the HMO plan, takes care of the largest portion of State
employees, with Interflex, the source of so many difficulties, having a
membership of only 3 percent of State employees.
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Mr. Barrett addressed the subject of profitability, saying that in 1988 and 1989,
the combined losses for HMOs in the State exceeded $100 mill ion; however,
Intergroup managed its business prudently enough to remain financially stable.
He submitted that today, that remains the same, with a financial performance that
is prudent, not excessive. Mr. Barrett added that Intergroup's medical loss
ratio (the percent of premium dollars that go directly to health care expense)
is 82.1 percent. The norm for the group of large, publicly traded, managed care
companies is 79.3 percent. Intergroup's net income is at 5.1 per cent, compared
to the group at 5.5 per cent. Mr. Barrett emphasized that a company such as
Intergroup must make profits to bui 1d its reserves in order to expand its
services, which is what Intergroup is doing. He noted that in the past 18
months, Intergroup has committed $27 million to medical group facility expansion
and equ ipment improvements to increase capac ity and servi ce throughout the State.
Mr. Barrett contended that Intergroup's profits are not exorbi tant, but are
ethical and go to serve the needs of all Arizonans, with over $1 million being
donated last year to worthy causes around the State.
Mrs. Burns s~id that she thinks a company should work toward 100 percent
satisfaction of its clients, rather than expressing satisfaction that a majority
are pleased. She related that the House staff contacted 81 State employees that
have used the Intergroup plan. She noted that 51 of those contacted were happy
with Intergroup; of the 30 who were unhappy, there were varying levels of
discontent. She said that the interesting thing about the differences in these
individuals is that the ones who were happy rarely used the system and those who
used the system a lot were the ones most likely to be unhappy.
Mr. Barrett responded that Intergroup's goal is always to have 100 percent
satisfaction from its members, but said that surveys indicate that there is a
direct correlation between those who are most satisfied and those who use the
system most frequently. He said that he would be happy to make the results of
those surveys available to the Committee. He added that satisfaction has moved
upward in the last six months. He noted, too, that Intergroup has spent a great
deal of money in the past few years in identifying problems and improving service
and satisfaction. He submitted that in comparing Intergroup nationally in terms
of service and quality of care, Intergroup is dramatically above the national
average, being 25th out of 600 in a recent study of HMOs. Mr. Barrett said that
he thinks Interflex has been tremendously improved and is now meeting the State's
standards. He opined that there is a profound truth that the last people into
a managed care system are those people who absolutely don't want to be there,
and as hard as Intergroup may try, there are always going to be some of those
people who it will be impossible to satisfy. Mr. Barrett stated that the overall
satisfaction with Intergroup, the HMO, in FY 93 in Phoenix is 91 percent, and
in Tucson it is the same, overall, at 91 percent.
Mrs. Burns told Mr. Barrett that her only concern is that he is saying that the
problems employees are having is because they want an indemnity plan.
Mr. Edens commented that there is only a certain length of time before the
frustration level reaches the highest point, and said that he thinks a year's
time is an adequate length of time for making improvements, and now they must
be made.
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Mr. Barrett responded that Intergroup fully recognizes the problems that have
occurred and cont i nues to devote all efforts of the company to customer
satisfaction. He said that he is just as distressed, or more so, than Mr. Edens
with the results of the Interflex survey.
Ruth Kolb Smith. Chair of the Benefits Committee, Arizona Conference of the
American Association of Unjversity Professors, Tucson, stated that she is
appearing before this Committee because State employees and their families are
suffering severely as a result of the current State health care contracts. Ms.
Smith also said that she is attending this meeting today to ask for new health
insurance contracts for employees of the State and said that the present
contract, bid in a hasty and irregular manner, is based on a callous or ignorant
philosophy, is not providing adequate and satisfactory care, and is in violation
of State law ARS §38-65l. She added that Intergroup is in violation of every
quantitative standard prescribed in the contract and said that it is not in the
State's interest to continue a contract which was arrived at on an impromptu
basis with a nonperforming contractor for more than a year.
Ms. Smith stated that the current contract incorporates a "no subsidization"
po1icy suggested by an Intergroup 1obbyi st ina 1etter to Mr. Hi bbs. She
submitted that while this policy appears fair, analysis exposes it. She said
that it would indeed be fair if all employees were the same; however,
statistically, HMOs are chosen by younger and healthier people, while the
disabled and others with serious health problems cannot withstand delay and
denials of tests, treatment and referrals commonly practiced by HMOs to minimize
-costs. The patients tend to choose an indemnity plan, if they can afford it,
so that they can get specialized care.
(Tape 2, Side A)
Ms. Smith submitted that Intergroup has been in chronic violation of meeting
State contract standards, but said that promises from Intergroup that it will
improve must be treated skeptically, ~ue to their long history of broken
promises. She stressed that the current health benefits contract is not working,
with too many lives being affected adversely and the consequences of denying
treatment to State employees being evident, and said that the State needs to
rebid the contract - but it needs to be done right this time! She stated that
the last time the contract was bid, it was done in haste, but said that if the
State starts now, it can be done properly this time.
Ms. Smith charged that Intergroup has demonstrated that it is incapable of paying
bills promptly and accurately, incapable of keeping records, incapable of
answering mail, and apparently incapable of receiving mail from the U.S. Post
Office and distributing it to the proper place in its organization. She further
charged that del ay and denial of appropriate medi cal treatment is causi ng
suffering to State employees, and noted that the cost to the State in time lost
from work, in employee frustration, and pain and suffering is enormous. Ms.
Smith said that she has received hundreds of letters of complaint reflecting a
lack of medical treatment and said that physicians are receiving bonuses for not
making referrals. She stressed the need for performance standards for HMOs to
be incorporated into the health benefits contract and a physician advocate to
help protect people from abuse by the HMOs in pursuit of the bottom line.
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Ms. Smith emphasized the need for adequate health care for all State employees
and said that it should not require droves of letters and newspaper headlines
to get that care. She submi tted that DOA is concerned wi th the welfare of
Intergroup and is not concerned with the welfare of State employees. Ms. Smith
contended that State employees have nowhere else to turn but to the Legislature
and said that she is pleading for a new contract to provide the adequate and
satisfactory health coverage that is needed. (Copy of full text of testimony ­Attachment
3.)
Mrs. Burns stated that she, too, is an unhappy Intergroup patient and said that
there is only one reason she is still with the plan - so that she can know what
other State employees are experiencing. She chastised Ms. Smith, however, for
distributing a paper (Attachment 4) implying that Mrs. Burns is working with
the American Association of University Professors and supporting their efforts
in getting the State's health benefits contract rebid. She said that she would
like the record to reflect that she was not a part of this movement and urged
Ms. Smith to be more careful in the future about giving the impression that
someone has a.part in something that they do not.
Mr. Edens asked Ms. Smith for her suggestions for preventing problems in the
future. Ms. Smith said that there needs to be representation from the
universities and the needs of the disabled and elderly must be met.
PUBLIC TESTIMONY
Dr. John Sullivan, President and Medical Director, University Physicians,
University Medical Center, Tucson, stated he is responsible for quality
assurance, peer review and ensuring that patients get the quality of care they
deserve, and personally responds to each compla i nt. He noted that 1,000
University Medical Center patients have been enrolled in the Intergroup health
plan, and said that of that number, he has only had two complaints this year.
David Mendoza, Legislative Director, American Federation of State, County and
Municipal Employees (AFSCME), submitted that health care reform is the key issue
today, and said that the bottom 1ine is that the current law allows DOA to
negotiate a health plan for State employees on a regional basis versus Statewide
basis, leading to a disparity of benefits and costs. He pointed out that
employees in urban areas were not given the option of an indemnity plan and there
is still not a viable HMO plan in Flagstaff after a year. He said that while
DOA has worked diligently to fix the accessibility and affordability of health
care for State employees, in view of the current problems, he supports an
oversight of any health plan negotiated by DOA in the future. He suggested that
this Committee support legislation which will reblend retirees with active
employees and move toward comparable benefits and costs being available to all
emp1oyees throughout the State. Mr. Mendoza stressed that the provi si on of
health care benefits and the decision to provide certain levels of benefits are
policy decisions that should be made by the Legislature.
Mr. Edens asked Mr. Mendoza if his group is doing any type of surveys regarding
satisfaction levels of State employees. Mr. Mendoza answered affirmatively,
saying that AFSCME has started tracking the complaints they have received, as
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well as conducting their own survey on employee satisfaction. He said that most
of the problems cited in the complaints AFSCME has received have come from
retirees, especially in the rural areas.
Jacqueline Sharkey, Vice Chair of the Benefits Committee, Arizona Conference of
the American Association of University Professors, Tucson, recommended that the ~
health benefi ts contract be rebid and an indemnity pl an be offered for employees. 3
She further recolm1ended that future contracts incorporate more speci fi c standards
regard ing qual ity of care and that State employees be represented on all
committees reviewing health care contracts, especially employees from elected
groups. Ms. Sharkey suggested that there should be a specified method provided"
for obtaining feedback from health care providers and some standardization of
the data received. She added that there should be a way for employees to get­more
comprehensive information about the health care plans offered and contracts ~
should be enforced for noncompliance. She questioned why Intergroup was allowed
a six-month leeway in spite of the provisions in the contract requiring the
provider to be reliable and experienced. She noted that Intergroup has used the
excuse of not having experience with this program, which is contradictory to the
terms of the contract. She pointed out that Intergroup went through an
invest igat i on a few years ago and was found to be out of comp1i ance in
reliability and experience in a previous plan, causing a delay of the Consent
Order from the Department of Insurance. She questioned why this wasn't brought
out during the evaluation portion of the bidding process. (Copy of rebuttal from
Susan Gallinger, Director, Department of Insurance - Attachment 5.)
Norma Greer, Researcher, Benefits Committee, Arizona Conference of the American
Association of University Professors, Tucson, said that when she enrolled in the
State's health care plan she believed that Interflex was an indemnity plan.
She cited an experience of being refused a prescription for Seldane by her
physician and being told to go to Mexico to get medication. She stated that
she would like to have quality standards included in future health care contracts
and would also like to have contracts set up so as not to favor one insurance
company over another.
Dr. Carol Bernstein, President, American Association of University Professors,
Tucson, said that she thinks it is a very good idea to have elected people on
committees that are reviewing health care plans and suggested that people who
teach how to evaluate insurance policies could be utilized.
Anne Schutte, Faculty Associate, Arizona State University, Tempe, representing
herself, shared her personal health problems. She said that she takes eleven
different medications daily at a cost of $350 per month. She stated that in 1992
she enrolled in Interflex but because of the high premiums and noncovered claims,
she found this to be a costly program. She reported that she spent $4,000 last
year in out-of-pocket expenses. She suggested that she is the type of person
the State didn't consider last year when the new insurance program was selected.
(Copy of full text of remarks - Attachment 6.)
Dr. Harvey A. Smith, Professor, Arizona State University, Tempe, representing
hi mse1f, submitted documentat i on of cost effi ciency and cost analys is of the
Intergroup and Interflex health plans (Attachment 7).
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Dr. Mel. Firestone, Associate Professor, Arizona State University, Tempe,
representing himself, voiced his concern that the cost of the employees'
insurance premium has drastically gone up, but employees have not gotten a salary
increase.
Robert E. McConnell, Tucson, representing himself, stated that as a long-time
State employee and a recent retiree, he has been ambushed and astonished by an
unbelievable increase in the cost of health insurance, which has been coupled
with a frustrating decline in the quality and quantity of health care for his
wife and himself. He noted that his health care premium has increased 212
percent, totaling $270 per month, in a little over a year. (Copy of full text
of remarks - Attachment 8.)
(Tape 2, Side B)
Jane Baez, Motor Vehicle Customer Service, Flagstaff, representing herself,
stated that she has been i nvo1ved in government work for almost 20 years,
choosing to stay in a low-paying job because of the benefits and security it
offers. She noted that she takes home $1,000 per month, which is the only
support her family has. She said that she needs an HMO badly, which Flagstaff
does not have. Ms. Baez described the medical bills that have resulted from her
husband being struck by a snow plow and her son being hit by a bicycle and said
that these bills have accumulated to the point of her being sued for nonpayment.
She related that not one woman in the office where she works has had a pap smear
or mammogram since the current insurance coverage went into effect because they
can't afford it. Ms. Baez also stated that she has missed four times as much
work this year as she has ever missed because she cannot afford to go to the
doctor and she is not given time off to come to Phoenix to see an HMO doctor.
She commented that she had written a letter to Mary Ann Knight, but had never
received an answer. She then wrote a letter to Ms. Knight's supervisor, but
never got an answer to that letter either.
Ruth Stokes, Tucson, representing herself, stressed the need for the State to
offer a true indemnity plan to its employees and suggested that drugs should be
permitted to be bought in larger quantities for cost savings. (Copy of full text
of remarks - Attachment 9.)
Vernette Fitzpatrick, Tucson, representing herself, described her circumstances
of being a widow with three sons, her mother being in a nursing home, and having
an incurable disease herself. She said that her take-home pay is $1,100 per
month. She explained that she works for this low salary in exchange for the
benefits provided by the State. She expressed the need to have an indemnity plan
because of her particular medical problems.
Art Weese, Flagstaff, representing himself, testified that State employees in
Northern Arizona are concerned about the lack of an HMO plan in their area. He
noted that the shortest distance to see an HMO doctor is 200 miles round trip.
He also noted that employees in the Flagstaff area were told their premiums were
high because they lived in a high-stress area of the State. Mr. Weese reported
that some people are working while sick because they can't afford to go to the
doctor.
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
12 10/28/93
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Dr. Robert J. Letson, University of Arizona Retirees Association Legislative
COl1l1littee, Tucson, expressed concerns about ava i labil ity of benefi ts to ret i rees.
He said that his insurance premium has increased from $69 to $170 per month and
suggested that a capitation program will save retirees money.
Louise Muir, representing herself, stated that she is a twenty-six-year State
employee who has Lupus. She said that because of the treatment program she has
worked out with her phys ician, she is rarely sick or absent from work. She
expressed concern about jeopardizing that program by transferring to an HMO
doctor and stressed the need for an indemnity plan. She said that when she
called DOA about her problems with Interflex, she was referred to Ms. Stewart,
who is actually an employee of Intergroup, and said that she feels this is a
conflict of interest.
Tedde Scharf, Associate Director, Disabled Resources, Arizona State University,
Tempe, said that she has worked in higher education for twenty years. She
submitted that the drastic changes in insurance coverage for State employees has
affected the quality of care and trust level of those employees.
Jim Hemauer, Senior Program Coordinator, Arizona State University, Tempe, said
that he is very happy to 1earn of the enhancements that were done to the
insurance plans this last year but said that he doesn't think this should mislead
anyone into thinking that they are as good as what has been presented. He noted
that many items are no longer covered that were covered by the previous insurance
-provider. He also stressed the need for an indemnity plan and said that he would
like to have the option of staying with the physician he has had for the past
23 years.
Sherry Santee, Physical Therapist, Tucson, representing herself, reported that
Interflex was misrepresented as an indemnity plan to her when she enrolled in
the State's insurance program. She said that she would like to hear an admission
from Intergroup that Interfl ex was mi srepresented, and that they be held
accountable for this misrepresentation.' She added that she supports including
an indemnity plan in the benefits package.
Carol Long, representing herself, described her problems with Intergroup. She
said that in 1990, she was diagnosed with bilateral hip dysplasia. Due to this
condition, her legs are not properly positioned in the hip socket. She said that
with this problem, she has considerable excruciating pain when walking or at
rest, and her activity has become severely restricted. She was treated with a
variety of non-steroidal anti-inflammatory drugs and referred to a local
orthopedi c surgeon by her primary care phys i ci an. The orthopedi c surgeon's
recommendation to her was to "tough it out, II doing hip exercises at home and
treating the pain with drugs, until she is 65, when she can get a total hip
replacement. Ms. Long said that in May 1993, at her own expense, she sought an
independent analysis of her condition outside of the Intergroup network. Dr.
Hattrup of the Mayo Clinic Scottsdale recommended a surgical procedure to
reconstruct the hip rather than replacing it. Dr. Hattrup stated that he and
his colleagues were unaware of anyone in Arizona remotely qualified to do this
procedure but that the benefit of this procedure would be pain relief and normal
mobility. This information was transmitted to her primary care physician in the
form of a consultative 1etter. His response was to again refer her to the
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
13 10/28/93
orthopedic surgeon, who in turn referred her to another doctor identified as a
"local expert" in the field of hip reconstruction; however, the referral to the
"expert" was denied by the Medical Review Committee of Intergroup.
Ms. Long submitted that Intergroup's "bottom line" seems to be adversely
i nfl uenc i ng the care of the pat i ent. She noted that she has few opt ions
available to her at this point: 1) become crippled until she reaches a suitable
age when surgeons will perform a total hip replacement, or 2) personally bear
the extreme financial burden for the reconstructive procedure that will correct
her medical problem. Ms. Long opined that this is not how the system is supposed
to work, but is how the Intergroup system works. (Copy of full text of remarks ­Attachment
10.)
Mary E. Green, Professor Emerita, Arizona State University, Tempe, representing
herself, said that she would not have taken early retirement if she had known
what was in store for her in the way of insurance coverage. She pointed out that
her insurance premium rose 26 percent with the new coverage and was told that
Interf1ex is an indemnity program. Ms. Green alleged that a letter dated October
25, 1993 and signed by Rick Barrett, President and CEO of Intergroup, sent to
all Interf1ex members is replete with inaccuracies and the convenient use of the
passive voice to avoid responsibility. She opined that Interf1ex most certainly
does not ensure "access to the highest quality healthcare available in the State
of Arizona," but quite the contrary. (Copy of handout - Attachment 11.)
Dr. David W. Smith, Chair, Legislative Committee, University of Arizona, Tucson,
maintained that in the U.S., the health care industry is HMO driven because the
majority of people are not chronically ill and the costs for their care are
less. He said that his experience has been that the chronically ill person seeks
an indemnity plan.
(Tape 3, Side A)
Dr. Smith contended that the chron i ca11 y ill people and those who are not
chronically ill cannot be serviced by the same type of medical plan. He stressed
the need to have an indemnity option in the State health plan and some kind of
advocacy group to ensure that the patient gets appropriate health care.
Roger Carter, representing himself, stated that he spent $3,741 out of pocket
in 1991 and $5,994 in 1992 on medical care for his ill wife. He questioned why
other states can have a good Blue Cross/Blue Shield plan for their employees and
Arizona can't.
Carole Dow, representing herself, said that she thinks it should be clear to
everyone that employees should be offered a choice of what type of insurance they
want to have, whether it be an HMO, indemnity, or whatever.
Eli Kaminsky, Professor Emeritus of Political Science, Arizona State University,
Tempe, representing himself, testified that the right to choose a physician is
a sacred right that should be preserved.
Christy Bison, Tempe, representing herself, said that her major complaint with
Intergroup is that nurses are maki ng di agnoses rather than schedu1 i ng an
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
14 10/28/93
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(Attachments and tapes on file in the Office of the Chief Clerk.)
Marianne Alcorn submitted a copy of her remarks but did not testify before the
Committee (Attachment 12).
Mrs. Burns announced that the next Committee Meeting will be held on November
18, 1993 early in the morning.
The meeting adjourned at 2:42 p.m.
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
15 10/28/93
cr
11/4/93
appointment with a doctor. She said that in a recent call, her doctor made a
diagnosis and prescribed medicine over the phone without having examined her.
She said, too, that her doctor advised her that she doesn't need a mammogram
until she is 50 years of age, even though she was experiencing breast problems
at the time.
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ATTACHMENT C
Notice/Minutes of 11/30/93 Meeting
LEGISLATIVE OVERSIGHT HEALTH INSURANCE BENEFITS REVIEW COMMITTEE
ARIZONA STATE LEGISLATURE
INTERIM MEETING NOTICE
Open to the Public
Representative Eden
Representative Edens
Representative Conner
Representative Ortega
Representative Brenda Burns
Cochair
House Hearing Room 3
AGENDA
Review of State Employee Health Insurance Benefits
: Hsyse HeaFiAg Ree~ 2
Senator Carol Springer
Acting Cochair
MEMBERS:
Senator Brewer, Cochair
Senator Hardt
Senator Hermon
Senator Soltero
Connie Butchee, Supreme Court appointee
Professor Frank Williams, Board of Regents appointee
10/17/93
rd
PLACE:
SUBJECT:
DATE: Tuesday, November 30, 1993
TIME: 1:00 p.m.
1. Opening Remarks
2. Committee recommendations based on October 28 meeting
3. Comparison of Health Insurance Benefits Available to State Employees in
Rural and Urban Counties
a. Overview by the Department of Administration (DOA)
b. Public testimony
4. State Retiree Health Insurance Coverage
a. Staff overview of legislative enactments concerning the retiree health
insurance program
b. DOA overview of policies regarding retired state employee health
insurance coverage
c. Presentation by the Arizona State Retirement System (ASRS) on the
retiree health insurance program administered by ASRS
d. Public testimony
5. AHCCCS and State Employee Health Insurance
a. Presentation by Representative Schweikert
b. Public testimony
6. Committee recommendations
7. Adjourn
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(Tape 1, Side A)
LEGISLATIVE OVERSIGHT HEALTH INSURANCE BENEFITS REVIEW COMMITTEE
The meeting was called to order at 1:10 p.m. by Cochairman B. Burns and
attendance was noted.
Senator Hermon
Senator Soltero
Prof. Frank Williams
Senator Springer, Cochairman
Mrs. B. Burns, Cochairman
Members Absent
Members Present
ARIZONA STATE LEGISLATURE
Forty-first Legislature - First Regular Session
Interim Committee Meeting
Minutes of Meeting
Tuesday, November 30, 1993
House Hearing Room 3 - 1:00 p.m.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
NOVEMBER 30, 1993
Connie Butchee
Mr. Conner
Ms. Eden
Mr. Edens
Senator Hardt
Speakers Present
Sue Dunaway, Senate Research Analyst
Bill Bell, Assistant Director, Personnel Department, Arizona Department of
Administration (ADOA)
MaryAnn Knight, Benefits Manager, Arizona Department of Administration (ADOA)
Lisa Hardy, House Research Analyst .
Tom Finnerty, Legislative Liaison, Arizona State Retirement System (ASRS)
Donna Buelow, Manager, Retiree Health Insurance Unit, Arizona State Retirement
System (ASRS)
David Mendoza, Legislative Director, AFSCME Council 97
Norma Greer, representing herself, Tucson
Anne Schutte, representing herself, Tempe
Richard Murra, representing himself, Chandler
Harvey A. Smith, representing himself, Tempe
Jim Witner, President, University of Arizona Retirees Association
Dr. Robert Letson, representing himself, Tucson
Dr. David Smith, representing himself, Tucson
John Brand, representing Arizona State Retired Employees Association
Bill Cook, represpnting himself, Glendale
Senator Brewer (excused)
Mr. Ortega
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DISCUSSION OF RECOMMENDATIONS
Sue Dunaway. Senate Research Analyst, related the Committee recommendat ions
based on the October 28 meeting (Attachment 1) for discussion by the Members.
Recommendation #1
Ms. Dunaway noted that Eliott Hibbs, Director, Arizona Department of
Administration (ADOA), stated at the last meeting that they are presently in the
process of compiling a Request for Proposal (RFP) for an indemnity plan.
Cochairman Springer suggested that the Committee recommend that the state offer
an indemnity program that is not subsidized; the state portion should only be
the same as with other coverages. She addeQ that if the state employee chooses
the indemnity program he/she should pay the difference.
Mr. Edens stated that he received the RFP for an indemnity plan today. He said
he has not had a chance to look at it but opined that it would be better to
review the rate of subsidization after making sure the RFP is proper.
Senator Hermon spoke against state employees subsidizing the indemnity program
for other employees.
Chairman B. Burns clarified that the Committee recommends that there be an
indemnity option for employees which is not cost prohibitive and takes into
account the cautions pointed out by Cochairman Springer, Senator Hermon and Mr.
Edens.
Recommendation #2
Ms. Eden suggested that DOA, in preparat i on for the bi d, shoul d ask for
representation from AFSCME, the universities, and a variety of people.
Bi 11 Bell. Ass i stant Di rector, Personnel Department, Ari zona Department of
Administration (ADOA1, explained that ADOA has prepared the RFP for an indemnity
plan as mentioned in the last meeting. He said they will have a pre-bid
conference meeting which will be open to the public in which they can talk to
the carriers; they will also invite comment from interested parties. He said
this will be done before the RFP is finalized before going to bid. They plan
to have this meeting sometime next week; the State Procurement Office will be
notifying the public shortly. He added that their intent, because there is great
interest in an indemnity plan, is to obtain as much input as possible from those
who are interested. Since they have a very short time frame, they believe this
might be the best route to go.
He cl ari fi ed for Ms. Eden that ADOA has exi st i n9 contracts for HMO carri ers
throughout the state; they are in the second year of those five-year contracts
so they will not be bid at this time.
Cochairman B. Burns suggested that a change be made in Item #2c: Delete the word
"Require" and insert "Recommend."
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
2 NOVEMBER 30, 1993
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The Members agreed to adopt Recommendation #2 incorporating the above
suggestions.
Recommendation #3
Ms. Dunaway said it is up to the Committee whether or not to add a specific time
frame for Item #3a. She pointed out that Interflex was out of compliance for
nearly the entire plan year although they were only penalized during the last
six months.
Regarding Item #3c, she noted that DOA and Mr. Edens were to meet on this issue
but due to miscommunication they were not able to meet before the meeting, so
they will meet after the meeting to develop a form for reporting the contract
performance of the carriers to the Committee.
Senator Hermon indicated that the language in this recommendation is not strong
enough. She suggested that in Items #3a and #3c, the word "should" be changed
to "will"·or·"shall."
Cochairman B. Burns pointed out that Recommendations #2 and #3 contain specific
bullet points regarding the quality of care which have been lacking in RFP's and
contract awards. She noted that she is glad to see that.
Mr. Edens suggested that this Committee meet on at least a quarterly basis so
that ADOA can present the required information, allowing the Committee to provide
administrative oversight.
Chairman B. Burns replied that statute requires that the Committee meet annually,
and the Committee can meet quarterly if the Members wish to. She said another
alternative is that after receiving the reports, it can be determined if there
is a need to meet on a quarterly basis rather than annually.
The Members agreed that Item #3c should require that the reports from ADOA be
submitted to the Committee on a quarterly basis.
Cochairman B. Burns suggested in Item #3a "in a timely manner" should be changed
to "in keeping with the time provided in the contract."
Mr. Conner stated that in Item #3c, if the Committee is going to be an ongoing
oversight committee, a recommendation should be made that Wyatt and Company has
to review any problems and the Committee would make a recommendation from their
findings.
The Members agreed with the suggested changes in Recommendation #3.
RECOMMENDATION #4
Cochairman B. Burns asked if Item #4a refers specifically to ADOA or the
providers.
Ms. Dunaway said the brunt of this request stems from the people who testified
at the last meeting; they indicated that when they spoke to different carriers
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
3 NOVEMBER 30, 1993
they received different stories. This requires that ADOA will be the primary
disseminator of information.
The Members agreed to adopt Recommendation #4.
RECOMMENDATION #5
Senator Hermon said she is one of the people who brought up Item #5b, and
although it is minutia, it is a major annoyance to have to get an annual
prescription filled every month.
Cochairman B. Burns expressed a concern that Item #5a may be detrimental to
families. None of the other Members shared her concern.
The Members agreed to adopt Recommendation #5.
PRESENTATIONS
Cochairman B. Burns noted that DOA's testimony will focus on comparison of health
insurance benefits available to state employees in rural and urban counties and
state retiree health insurance coverage.
Bill Bell. Assistant Director. Personnel Department. Arizona Department of
Administration (ADOA), noted that there is a national health care crisis
resulting in a 37 percent increase in costs nationally over the last three years.
He said he is proud that the premium costs to state employees have risen only
7 percent during that same period of time.
.
He recognized that there are some state employees who are still unhappy with the
plans available to them but emphasized that only some of the employees are still
unhappy. He opi'ned that most employees are satisfied with the health care
coverage administered by the state; however, they will be conducting a survey
of state employees again in early 1994.
(Tape 1, Side B)
He noted that the State offers quality health care plans i~ all areas
(Attachments 2 and 3). He stated that coverages under Health Maintenance
Organizations (HMOs) vary by carrier but there are some commonalities, whether
provided in the rural or urban areas, such as prescriptions for $3 to $5, no
hospitalization charges, preventative coverage, durable medical goods coverage,
minimum co-pay for doctor's office visits from zero to $10, unlimited coverage
for most conditions and catastrophic coverage.
Mr. Bell explained that all state employees have access to HMO's except in the
Fl agstaff area but added that they have just arranged for Coconi no County
employees to have access to any HMO in the state for routine, plannable
situations while maintaining their indemnity. He said this is not an ideal
option but it meets some of the employees' needs for now. Announcement of this
option will be mailed to eligible employees next week with meetings scheduled
for December 13 in Flagstaff. The effective start date will be January 1, 1994.
He expressed hope that this move will encourage local providers to offer the HMO
option to employees in the Flagstaff area in the near future.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
4 NOVEMBER 30, 1993
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He said, historically, Blue Cross/Blue Shield had bid and was awarded an
indemnity program; however, ADOA wanted to offer employees in the rural areas
a choice of health care plans. Therefore, ADOA and Blue Cross/Blue Shield formed
a partnership of commitment with Blue Cross/Blue Shield dedicated to expanding
their HMO network. As a result of this partnership, they have been able to
enrich the benefits for Blue Cross/Blue Shield participants without increasing
costs. He said to date ADOA has increased the number of HMO provider hospitals
(Attachment 4) and they have more than doubled the number of physicians who are
HMO providers in the rural areas (Attachment 5). This expansion has allowed many
state employees to have continuity of care when their physicians under previous
coverages became Blue Cross/Blue Shield HMO providers.
He related the changes made so that the rural HMO is more comparable (Attachments
6 and 7). In addition, the deductible period was extended to 21 months, from
January 1, 1992 to October 1, 1993 when deductib1es were converted from calendar
year to a plan year.
Senator Hardt requested a copy of Mr. Bell' s test imony. Mr. Bell agreed to
provide him with a copy.
Mr. Bell related to the Committee that for retirees ADOA provides pol icies often
based on statute covering choice of plans, level of benefits, premium costs, and
separation of groups. He said A.R.S. 38-651.01 and personnel rules currently
allow a retiree to remain in his/her current ADOA-administered plan or opt into
the Arizona State Retirement System's (ASRS) administered plan. Retirees who
choose to move into the ASRS plan may not rejoin the ADOA-administered program.
If it were possible to opt back and forth, the plan would have a fluctuating pool
of participants, and therefore, would be difficult to bid and very difficult to
administer.
He said that retirees receive the same level of benefits as active employees.
Retirees pay the total premium cost for their health care insurance, unlike
active employees who pay a portion of the total. However, retirees receive a
subsidy from the ASRS. In addition, those retirees who are Medicare-eligible
have significantly lower premiums due to Medicare coordination of benefits.
He mentioned that in the process of bidding the new health care program, ADOA
became aware of A.R.S. 36-651.01 which prohibited combining active and retiree
groups. Based on advice from the Attorney General's Office, information from
their carriers and recommendations from consultants, they decided to bid the
retirees plan as a separate demographic group. He acknowledged that many
retirees experienced premium increases as a result of unb1ending; however, there
were a number who experienced decreased premiums (Attachments 8 and 9). He said
they have been and wi 11 cont i nue to work wi th the carri ers to fi nd ways to
enhance coverages under these plans for retirees. He expressed the Department's
continued support of increased subsidies for retiree premiums.
Mr. Be11 presented a program enhancement announced by ADOA last week called the
Senior Care Program. It reduces health insurance premiums for retirees who are
Medicare-eligible by allowing them to assign their Medicare benefits to the CIGNA
staff or Intergroup HMO's. Retirees may reduce their premiums by as much as
$1,000 to $4,200 per year at no increased cost to the state. He said meetings
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
5 NOVEMBER 30, 1993
to introduce this enhancement will be held in December, 1993 and January, 1994
with coverage effective February 1, 1994. He added that Blue Cross/Blue Shield
is developing a similar plan which he anticipates will be available in the spring
of 1994.
In addition, Mr. Bell said ADOA has developed new communication tools for both
active and retired employees. He said newsletters will provide tips on we11ness
and utilizing health care plans; they hope this will increase the retirees'
understanding and ability to maximize their benefits. They have established a
Benefits Advisory Task Force that will include retirees as members. The Task
Force will be meeting later this week to provide input to ADOA.
He noted that there has been some discussion relating to reb1ending the retirees
and active employee group. He said ADOA is committed to fully supporting and
worki ng wi th the Commi ttee to reach an equ itab1e sol ut ion to th is and other
health insurance concerns. He pointed out issues that should be considered
before such a recommendation is made:
1. Premium rates for active employees would increase; this increased
cost would have to be borne by either the employee or the state.
2. Premium rates for those retirees who are currently paying less than
active employees would increase.
3. Consideration might be given to allowing retirees who opted out of
the ADOA-administered plan to return to the ADOA plan. If this
should occur, it would be difficult to bid and administer plans with
fluctuating participant pools. This may cause significant increases
in- administrative costs.
Mr. Bell clarified for Mr. Edens that RFP's are drafted in his office, then they
are submit ted to the Procurement Offi ce where they are refi ned. He sa id
enforcement of the provisions of the RFP fall jointly to the Personnel Division
and the State Procurement Office within ADOA.
Mr. Edens emphatically stated that the reason this Committee is meeting is
because one carrier is not complying with their RFP and something needs to be
done about it. Mr. Bell replied that he agrees that this needs to be addressed.
He related to Mr. Edens that they have assessed penalties to Intergroup and will
be meeting with them to make sure they are in compliance with the RFP and that
they will stay in comp1 iance. He noted that the other carriers are in
compliance.
Cochairman Springer asked if reblending of the retirees with active state
employees would require a statutory change. Mr. Bell answered that he has been
advi sed by the Attorney General' s Offi ce that a statutory change woul d be
necessary.
Cochairman Springer asked the reason why all state employees and/or retirees do
not have the same health programs available.
Mr. Bell stated that he was not on the Committee but he believes the RFP's were
put out asking for a variety of combinations; one was for a bid on a statewide
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
6 NOVEMBER 30, 1993
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program. Some of the carriers did bid a statewide program Qut the Committee
believed the cost was prohibitive.
Cochairman Springer asked if ADOA has considered breaking the state up into
quarters or some other kind of situation in an effort to try to make available
to the rural areas those plans which are available in the urban areas. Mr. Bell
replied that they are considering a variety of options including her suggestion;
they understand that this is a major problem for many of the retirees and they
hope to resolve it.
Cochairman Springer asked if a rural employee or retiree opts to pick up a plan
from an urban area, i.e., could they choose to be a member of one of the plans
available in the Metropolitan area if they want to drive to Phoenix or wherever
to take advantage of that. Mr. Bell rep1i~d that this can be done as long as
that plan is offered in the area. He referred to the opt i on wh i ch wi 11 be
available in Flagstaff.
Cochairman Springer asked if ADOA would object to changing the statute to allow
retirees who opted out of the system an opportunity to come back in. Mr. Bell
replied that he is not sure they would object, however, there are some
conditions which would need to be considered. He clarified that those over 65
are paying lower premiums now so he doesn't know if they should be given this
option.
Cocha i rman Spri nger noted that the separat i on of ret i rees from the act i ve
emp1oyees was sprung on the ret i rees wi thout, not ice, and under the
ci rcumstances, they shoul d be offered the opportun ity to opt back into the
system without a big hassle. Mr. Bell agreed with her statement. He said they
have approximately 3,000 retirees in the ADOA-administered program but he
doesn't know how many retirees opted out.
Cochairman B. Burns asked if the rate to active employees decreased as a result
of the unb1ending. Mr. Bell said it did. He elaborated that if reblending
occurs, there will be an additional cost; that cost will be picked up either by
the employee or it can be picked up by the state.
Cochai rman B. Burns di sagreed with Mr. Bell's statement that the state has
continued to offer quality health care at an affordable cost. Regarding his
comment that the increase to the state employee premium has increased only 7
percent over the last three years, she opined that the same level of care has
not been maintained mostly due to the spiraling cost of health care.
MaryAnn Knight. Benefits Manager. Arizona Department of Administration (ADOAl,
explained that ADOA is currently offering the ability to choose an HMO outside
of Flagstaff to be effective January 1, 1994. The participant will maintain
the indemnity coverage in F1 agstaff but wi 11 have the opt i on to travel to
Maricopa County or anywhere else and utilize HMO benefits. She agr~ed that this
is not an ideals ituat ion but they are hop i ng that the economi c impact will
motivate providers to opt into the HMO system.
Cochairman Springer assumed the Chair.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
7 NOVEMBER 30, 1993
Ms. Eden expressed reservation about a viable indemnity program. Mr. Bell said
state employees want an indemnity program and thay are trying to do that. He
said they do not expect a groundswell of carriers to bid on the plan but he
believes they will have sufficient bids to make a reasonable decision.
Ms. Butchee noted that she conducted a survey of several states, their indemnity
plans, HMO's and how costs are passed on to the employee. She related the
information to the Committee pointing out that the State of Massachusetts offers
14 HMO's and a State Hancock indemnity plan while Washington, D.C. offers four
HMO's and a Blue Cross/Blue Shield indemnity plan (Attachment 10). She asked
if the HMO's and PPO's were included in the bid for an indemnity plan, would the
cost be lower for state employees.
Mr. Bell replied that it probably would be more advantageous to bid as a package
but reiterated his earlier remarks that they currently have existing five-year
contracts with the present carriers, and he believes the rates have been very
favorable. With respect to the RFP for an indemnity plan, they are responding
to what they ·have heard from employees and this Committee.
Cochairman Springer asked if the current five-year contracts have an annual
renewal clause. Mr. Bell repl ied that they do, and they can el iminate the
carriers on any given year .
. Cochairman Springer asked if when ADOA initially requested bids for these
programs, they specified coverage and price. Mr. Bell replied that they did
specify coverage and price but they also requested that they be flexible and
submit other programs.
Cochairman B. Burns resumed the Chair.
Lisa Hardy. House Research Analyst, referred to a handout (Attachment 11) which
shows how the retiree health insurance benefit program works, the four state
retirement systems and types of employees included under each program. She
presented a historical recap of the program.
She clarified for Cochairman Springer that a policy change was made within ADOA
to separate the retirees from the active employees during the 1992 enrollment
period based on an informal opinion from the Attorney General's Office and the
statutory language cited by Mr. Bell previously. The practiced policy prior to
this enrollment period was to blend the retirees with the active employees.
(Tape 2, Side A)
Cochairman Springer said it is her understanding that there were no bidders for
the rural areas for retirees so ADOA had to solicit a carrier for that coverage.
Mr. Bell answered that Blue Cross/Blue Shield bid for this coverage; ADOA did
not have to solicit bids for the retirees. He recalled that CIGNA, Blue
Cross/Blue Shield and Intergoup bid on this coverage.
Tom Finnerty. Legislative Liaison. Arizona State Retirement System (ASRSL
thanked Ms. Hardy for presenting the history of the program. He stressed the
fact that one of the reasons ASRS took over the administration of the health
insurance program is that they have over 200 employers, each with the irown
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
a NOVEMBER 30, 1993
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health insurance program with varying degrees of when coverage is terminated;
part of the intent is that ASRS not steal anybody from the coverage they are
already receiving. Basically, the law states that ASRS can only provide
coverage when emp10yee~ are no longer eligible to receive coverage from their
plan employer, i.e., those who are uninsurable go to ASRS and they have to
provide that insurance. He said this leaves ASRS in a vulnerable position
because it is very hard to attract insurers who provide competent bids. He said
FHP has been the only one that has come through each time.
Donna Buelow. Manager. Retiree Health Insurance Unit. Arizona State Retirement
System (ASRS), noted that the retiree group insurance program through the ADOA
Procurement Office issued a RFP for health insurance coverage in 1990 to be
effect i ve January 1, 1991. Proposa1s were rece i ved and rev i ewed by the
Procurement Committee which consisted of ASRS staff and others in the benefit
community. National Dental Health was chosin for a prepaid dental plan and FHP
for an indemnity dental plan. The proposal from FHP was accepted for HMO and
indemnity medical coverage. The terms of the contract were for one year with
four renewable options, each for a one-year period. She said included in the
contracts was a pricing schedule which indicates maximum increases allowable for
each renewal period.
She said procurement procedures necessitate that staff indicate annually whether
a renewal will be accepted or if the contract should be placed out to
competitive bidding. ASRS staff has historically presented the renewable
proposa1s to the ASRS Governi ng Board and thei r appoi nted subcommi ttees for
their approvals or rejections. The renewal proposals presented by the carriers
for 1992, 1993 and 1994 have been accepted by the Board and approved by the ADOA
Procurement Office. .
She went over their current plans:
1. A prepaid dental plan which offers preventive services and no out­of-
pocket costs for the member through participating offices.
Benefits are also available through an alternate reimbursement
program if a provider is not available within a geographic distance
from the member's residence. Premiums range from $6.12 per month
for a single member within Arizona to $15.58 for a family residing
in one of the other states in which this plan is offered. Current
enrollment figures indicate that approximately 8,700 retirees and
3,300 dependents are enrolled in this plan; the majority (97
percent) reside in Arizona.
2. Indemnity dental plan offered by FHP. The benefits are based on the
type of service provided. By accessing a preferred provider network
of dentists, benefits are paid at higher percentages. This plan
includes annual deductib1es and maximum benefit amounts. There are
currently approximately 3000 members and their dependents enrolled
in this plan.
3. The FHP HMO medical plan office services, through contracted
providers, in approved zip code areas of Arizona in Maricopa, Pima
and Pinal Counties. Members enrolled in Medicare as well as those
who are not are eligible to enroll in this plan. The plan for those
enrolled in Medicare is the Golden Health Care Plan. Benefits are
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
9 NOVEMBER 30, 1993
4.
similar for both plans and include a S5 copayment for office visits,
S3 copayment for prescription drugs and a S200 per year allowance
for heari ng aids. The premi ums for the HMO plans are based on
MediJ=are eligibility of both the member and his/her dependents.
Current enrollment data indicates that there are approximately 2,600
members who are not eligible for Medicare. Those enrolled in the
Golden Health Care Plan total approximately 4,600.
She noted that expansion has been a priority for this plan.
Beginning in 1994 retirees living in areas of California, Nevada and
New Mexico will be able to access the HMO's available within those
areas. Expans ion wi th in the State of Ari zona is somewhat more
dffficult as it is imperative that any expansion be coupled with a
Med icare ri sk contract. Whil e negot iat ion is not yet complete,
there are some areas within Arizona in which they may see a
completion within the calendar year of 1994.
The indemnity medical program offered by FHP includes coverage for
those not Medicare-enrolled and those enrolled in Medicare in the
form of a Medicare supplement plan. The Medicare supplement plan
includes benefits such as prescription drugs for either a S5 or S10
copayment depending on whether a generic or brand name drug is
received. There is an annual maximum on this benefit of $1,600.
FHP pays the Medicare deductible of S100 per year for medical care.
The plan also pays 20 percent of Medicare allowable charges. There
are currently 11,000 individuals enrolled in the Medicare supplement
plan. Sixty percent of those reside in Metropolitan areas of
Arizona. .
For those not enrolled in Medicare, the indemnity plan has a
deductible of S250 for an individual and S500 for family coverage.
Benefits are paid based on the usage and avai labil ity of PPO
networks that have been established. Realizing that this type of
plan is expensive both in terms of premium and out-of-pocket
expenses, ASRS has worked with the carriers and benefits consultants
to offer some relief.
To this end, two features have been included in this plan. The
availability of the PPO network offers the possibility of
eliminating the deductible and coinsurance for office visits in lieu
of a S10 copayment. When PPO provi ders are accessed for other
services, the insured is reimbursed at a higher rate than a non­network
provider would be. Effective January 1, 1994, each insured
in rural Arizona residing in a PPO-service area can call a toll free
number and obtain assistance in receiving a physician referral. If
a PPO provider is not available within a reasonable geographic
distance, a non-PPO provider will be recommended. By obtaining this
referral, the insured has the claim paid at the higher PPO rate
regardless of whether the physician is a contracted PPO physician.
This is called the Personal Care Network and they currently have
approximately 2,100 individuals insured in this plan; 1,300 of those
live out of state or in the rural areas of Arizona.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
10 NOVEMBER 30, 1993
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She offered two of the many items they are looking forward to in the
upcoming years in this program: 1) Creation of a position to serve
as an ombudsman or retiree advocate for the purpose of medical care
for the enrolled members. Th is would be over and above the
activities carried out by the representatives who presently work at
the system. 2) It has been suggested that a post-RFP process be
undertaken prior to the next bidding to ascertain and determine how
to encourage competition among the carriers for the upcoming years.
Mr. Conner asked about providing insurance for those who take early retirement.
Mr. Finnerty replied that the people who retire prior to age 65 are probably in
the highest risk group in the country. Traditionally, when ASRS goes out for
bid on programs, they receive more than just FHP bidding on the contracts but
they are usually only willing to take those on the Medicare level; they don't
bid for any coverage below 65. He explained to Mr. Conner that under ASRS their
contract insurer is the FHP company, PPO (Preferred Provider Organization) is
a program provided by many insurers within their indemnity coverage. Usually
it is a 90-10 reimbursement (the insurer will pay 90 percent, the individual
pays 10 percent). If a PPO provider is not used, the reimbursement drops down
to 70-30.
Mr. Finnerty explained to Mr. Conner that when retirees become 65 or disabled,
under social security, after two years they become Medicare-eligible. Then the
subsidy drops from $95 per month to $65 per month recognizing the fact that the
primary insurance from age 65 on is Medicare; ASRS only provides the supplement.
Before age 65, the insurance provided by ASRS is primary.
David Mendoza. Legislative Director. AFSCME Council 97, submitted a Fact Sheet
and related legislation (Attachments 12 and 13). He referred to a Report by
the Auditor Gener.al on the Personnel Division of ADOA (Attachment 14) which
identifies many of the concerns of AFSCME and the Committee. He pointed out the
recommendations made by the Auditor General on page 30 of the report noting that
he bel ieves they are a step in the right direction but they do not go far
enough. He opined that ADOA should be required to negotiate health plans which
provide comparable benefits at comparable costs to all state employees
regardless of their residence and A.R.S. 38-561 should be amended tQ provide for
that process. He urged the Committee to do that.
He referred to a Fact Sheet concerning the reblending issue (Attachment 15) and
submitted a position statement, for the record, in support of legislation to
require blending of retirees with active employees (Attachment 16).
PUBLIC TESTIMONY
Norma Greer, representing herself, Tucson, said she spent the last year
researching the hurriedly bid health care contract of 1992 and the resulting
health care options. She submitted that the entire premise for the 1992 bid for
the state employee's health insurance is flawed and the entire contract needs
to be rebid; not only the indemnity program. The unblending of retirees, rural
employees and people choosing indemnity-type insurance has sabotaged the
intended stated goals of saving the state money. It has not only cost the state
more money but has cost the state in angry current and former employees.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
11 NOVEMBER 30, 1993
Cochairman Springer assumed the Chair.
Ms. Greer endorsed the FHP indemnity plan presently in effect with the City of
Tucson (Attachment 17). She stated that what Interf1 ex offers the State of
Arizona is a PPO which is very restrictive and requires that a single person pay
$804 more per year (compared to the City of Tucson) for single coverage with a
$400 deductible and Interflex pays 80-20 of "covered" expenses. She contended
that the contract that Intergroup has written in their Interflex program is
riddled with exceptions, misleading verbiage, and doub1etalk.
She explained that Pima County offers their employees Intergroup HMO; their
Benefi ts Manager related to her that the 1arger the pool, the cheaper the
insurance. They have wonderful rates with Intergroup HMO because they have
3,000 people insured by Intergroup (Attach~ent 18). T~e State of Arizona has
12,000 people who are insured by Intergroup HMO and they are paying $610 more
per year in Maricopa County and $508 more per year in Pima County. She
indicated that this doesn't make sense. Not only does the state have three
times the number of employees but those employees have been unpoo1ed from the
high risk groups and high cost employees.
She proposed that the Committee very carefully review the RFP for an indemnity
program. She suggested that the Committee be required to choose an evaluation
committee and make sure they know what they are doing. She remarked that fines
ought to be imposed on Interflex for the full year they were not in compliance
with the RFP.
She pointed out that the 1992 contract with Intergroup contains proposed renewal
rates which clearly don't match the 35 percent required by the RFP for cost
containment. She said they are making a lot of money and the State is losing
a lot of money. She concluded by commenting that somebody needs to carefully
look into what is going on.
Mr. Edens asked if it would be possible to have staff review the Pima County
policies to determine if they are the same or better. Ms. Hardy agreed to do
that.
Anne Schutte, representing herself, Tempe, testified that the state must pay
more if necessary so individuals needing an indemnity plan can afford an
indemnity plan. There should be performance standards for all plans; insurance
must be affordable and accessible to everyone. She submitted that all contracts
should be rebid at this time. She suggested elimination of the no subsidization
philosophy because it violates the nature and purpose of insurance. Employees
do not have the same medical needs; the disabled, seriously ill and the elderly
suffer physically and already shoulder high medical expenses. They feel further
victimized by high premiums, high copays and insurance loopholes. The insurance
pool should include all state employees thereby making insurance affordable and
truly available to everyone. The cost should be shared by everyone, including
the young and healthy.
She asked under the pressure to contain health care costs, what protection will
consumers have to ensure that their accountable health plan will not refuse to
provide or pay for covered services on the grounds that the treatment is not
medically necessary. Employees should be represented on all boards, panels,
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
12 NOVEMBER 30, 1993
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committees or other bodies concerned with health care options. These
representatives should be chosen from groups whose members are elected by the
emplo~ees and are not appointed.
She stated that the HMO's need supervision; the disabled, seriously ill, and
elderly are faced with many problems when they are confronted only with HMO
options. She questioned the sense of offering new contracts to companies with
a poor performance history. She expressed a need to properly inform employees
as to the detail regarding plans so they can make informed decisions. Employees
should have the option to opt out of their insurance plan into another if the
services provided by the plan are not satisfactory following grievance
procedures.
Cochairman B. Burns resumed the Chair.
Richard Murra, representing himself, Chandler, addressed the Committee and read
from a prepared statement (Attachment 19).
Harvey A. Smith, representing himself, Tempe, indicated the Attorney General's
opinion concerning unblending of the retirees from the active employees was
solicited in August, 1992 after the contracts were concluded. He opined that
to state that the opinion was the basis for the unblending is somewhat
misleading. He advised the Committee that bidding for an indemnity program
. alone is not viable. He said he talked to several large insurance companies
such as Aetna and their representatives said they do not believe their actuaries
will allow them to bid on such a program. He expressed his preference of a
$2,000 or $3,000 deductible with the state paying most of the cost of the
premium, allowing the employees to go to their own physician.
Jim Witner, President, University of Arizona (UA) Retirees Association, Tucson,
noted that he represents 775 members. He related the following points:
1. The Association supports the goal of affordable health care
insurance for all active and retired state employees.
2. Retirees should continue to be eligible to retain their membership
in the ADOA's sponsored health programs upon their retirement.
3. Retirees should be retained in the same health insurance pool as
active employees particularly in the case of retirees not yet
Medicare-eligible. The current subsidy which is taken from ASRS
funds at no cost to the state and accounted to retirees with ten or
more years of service should be increased $25 per month in each
category in 1994-1995 to assist retirees and their dependents in
their efforts to meet the increased cost of health insurance within
approved programs. Retirees with five to nine years of service
should receive a reduced percentage of this increase according to
the previously established formula.
4. The State of Arizona should provide a pure indemnity health
insurance option for the active and retired employees who prefer
such a plan; they should be made aware that it may be costly.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
13 NOVEMBER 30, 1993
•
5. The State of Arizona must provide appropriate oversight to insure
that timely and competent health care is provi ded to act ive and
retired employees in either an HMO or an indemnity plan.
Dr. Robert Letson, representing himself, Tucson, stated that it has been six
years since the Legislature adopted the provision to establish retiree benefits
under ASRS with the aim of allowing people to continue their coverage with their
employers. That has not been a problem with the State but this is not the case
with many of the school districts.
(Tape 2, Side B)
He said ADOA was notified of this concern before the bill was passed. After the
bill was passed, at the last minute, they took bids but the bids were written
in such a way that only one company could make a bid. Those who were unable to
stay under those provisions only had one choice which was FHP, and while they
have a pretty good program, the continuity of their care was broken. In 1992
when the unblending occurred, Dr. Letson said his premium increased $60 per
month which comes to a total of $720 annually. He said he called ADOA about
this but they have never gotten back to him on that. He submitted that neither
the Attorney General's opinion nor statutory legislation required the unblending
of retirees from active employees. He opined that someone needs to watch what
goes on in ADOA.
Dr. David Smith, representing himself, Tucson, testified that he is beginning
to wonder if he made a mistake by joining an HMO because what is being implied
is that you get better health care in an indemnity program rather than an HMO.
He requested that the Commi ttee search for some data showi ng the di fference
between an HMO in terms of quality of care and the .indemnity system in this
country. He indi~ated that the majority of state employees, active and retired,
are in HMO's; if they are not a high-quality provider, the Committee must do
something to alleviate the fears that arise in the minds of those people that
they are not receiving first-class medical attention.
He addressed the statement that the larger the pool of participants, the better
the rates will be. He suggested that the entire group of people b~ formed into
one pool and bid to multiple carriers. He claimed that people who gravitate to
indemnity plans are by and large chronically ill and applauded the State of
Arizona for employing chronically ill people. He said they do deserve a better
break with respect to health care, but if the HMO is a quality deliverer of
care, their needs are better served in a huge pool in an HMO with this Committee
and other committees giving oversight. If, on the other hand, the HMO is not
a first-class health care delivery system, it is the Committee's responsibility
to provide an alternate plan.
John Brand, representing Arizona State Retired Employees Association, expressed
his support of Dr. Smith's testimony. He added that the main reason people in
his organization are opting for HMO's is because they cannot afford indemnity
plans. He requested a break in premiums for retirees.
Bill Cook, representing himself, Glendale, stated that he was in the FHP HMO
program and he "fired" them but he still has the dental plan. He said he
continues to maintain the indemnity plan that he had which was a MediGap policy.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
14 NOVEMBER 30, 1993
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He doesn't have to send in a claim to them; they pay automatically. He
requested that the statutes be amended to provi de an automat ic tri gger that
would increase health insurance coverage whenever it reaches a certain point,
and to provide coverage for early retirees.
Cochairman B. Burns noted that Mr. Schweikert is not available to make a
presentation concerning AHCCCS and state employee health insurance.
Mr. Mendoza stated that his organization would support the concept of AHCCCS for
state employees if the following items take place before implementation:
1. The transition should begin with a well-defined pilot program.
2. The program should be optional and not forced upon employees.
3. There should be no reduction in the benefit level employees
currently receive.
Cochairman B: Burns said this issue will not be addressed since there is no one
here to advocate for that.
DISCUSSION AND RECOMMENDATION OF ISSUES BROUGHT UP AT THIS MEETING
Ms. Hardy summarized the issues brought up during this meeting for discussion
by the Members.
1. Discrepancies between coverage offered to employees in rural versus
urban areas, i.e. should the state be allowed to bid on a regional
county or some other basis for state employee-health insurance or
should it be required to bid on a statewide basis.
Discussion followed among the Members and Mr. Bell.
Cochairman Springer moved, seconded by Mr. Edens, that the Committee recommend
that all bids for state employee health insurance be on a statewide basis. The
motion carried.
2. Reb1end i ng of ret i rees with act i ve employees, keep i ng them ina
separate pool or transferring them to the system operated by ASRS.
Mr. Bell contended that the Attorney General's opinion was not sought after the
bids; they had a representative from the Attorney General's Office on the
committee while going through negotiations. He said after the bids, he was
asked by one of the Senators to produce the opinion so he had the representative
on the committee from the Attorney General's Office place it in writing.
Mr. Edens remarked that the issue of legality of reblending should be clarified.
Senator Hermon moved, seconded by Mr. Conner, that the Committee recommend
reblending of the retirees, that a formal opinion be requested from the Attorney
General's Office, and if it is necessary, a bill be drafted to change the
statutes. The motion carried.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
15 NOVEMBER 30, 1993
3. Consideration of allowing the retirees who dropped out of the state
system and moved to ASRS, to re-enroll in ADOA on a one-time window­type
basis.
Mr. Finnerty stressed the fact that this might have impacts on their program if
there is a mass removal. He suggested that this be narrowed so that only those
with a most recent change be allowed to go back.
Discussion followed on the time frame. The Members agreed that after the
meeting this can be finalized.
Mr. Edens moved, seconded by Cochairman Springer, that the retirees who were
previously under ADOA coverage and who transferred either to ASRS or private
coverage from (date to be determined) be allowed to re-enroll in ADOA health
insurance, and legislation be prepared to accommodate re-enrollment. The motion
carried.
4. AHCC~S proposal
(Tape 3, Side A)
Cochairman Springer moved, seconded by Mr. Conner, that the AHCCCS proposal be
tabled. The motion carried.
Professor Williams brought up the problem of spouses of active employees who are
not eligible for insurance if the employee dies before retirement.
Cochairman B. Burns said this is an item the Committee could make
recommendations on but stated that they should become more informed on the issue
before doing so. She added that the Government Operations Committee would be
the appropriate Committee for this subject. Professor Will iams agreed to
forward information to that Committee.
5. Additional recommendations from the audience, i.e. should all plans
be bid on instead of just an indemnity plan.
Mr. Bell noted that begi nni ng in January ADOA will be in the process of
obtaining new rates for the coming year for the present contracts. He submitted
that eliminating the existing contracts could place a strain on the Department
as well as the health insurance companies. He said he did not interpret the
Committee's recommendation for a statewide bid to start right now.
Discussion followed between Mr. Edens and Mr. Bell concerning Intergroup.
Cochairman B. Burns commented that this Committee can meet at any time at the
request of any Member who has a concern which needs to be addressed. She added
that she and Cochairman Spri nger will send a 1etter to the Attorney General
regarding the reblending issue, and hopefully, will get a bill drafted to change
the statutes. She said a bill regarding the time frame for re-enrollment in
ADOA for ret i reeswi 11 also be drafted. She noted that the Members wi 11 be
receiving a draft list of the Committee recommendations and asked to be apprised
of any concerns the Members might have. She stated that quarterly reports
should be forthcoming.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
16 NOVEMBER 30, 1993
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(Attachments and tapes are on file in the Office of the Chief Clerk.)
Mr. Edens noted that each Member has been gi ven a copy of the RFP on the
indemnity policy (Attachment 20).
Cochairman B. Burns encouraged the Members to review the RFP and to let the
Chairs know if they notice anything that has not been addressed.
Without objection, the meeting adjourned at 5:13 p.m.
,
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12/6/93
17
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
NOVEMBER 30, 1993
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ATTACHMENT D
Excerpts from Auditor General's
Performance Audit of
DOA's Personnel Division
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PERFORMANCE AUDIT
DEPARTMENT OF ADMINISTRATION
Personnel Division
Report to the Arizona Legislature
By the Auditor General
October 1993
93-6
SUMMARY
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eeds To Redesign
Hiring System (see pages 5 through 12)
Currently, Arizona hiring system can deter the best candidates from entering State
service. The hiring lis rovided by Personnel often contain unqualified or unavailable
candidates. Some hiring ervisors stated that it was often difficult to find even one
qualified, available applica on lists submitted to them. In addition, the Division
requires agencies to follow polt 'es that are often counterproductive to effective hiring.
For example, we identified one se where a supervisor was required to offer an
interview to a candidate who did not eak English for a position that involved working
with the public.
In order to meet the needs of its users, Arizona must significantly revise the manner in
which personnel services are provided. Our audit work found that in the most important
service areas -- hiring, classification, compensation, and benefits -- Arizona's current
personnel system does not respond to its user's needs. The Federal Government and
many other state and local governments are examining or discarding personnel systems
that rely on extensive rules and restrictions in favor of systems offering the fleXibility
and responsiveness needed to provide efficient, effective service.
The Office of the Auditor General has conducted a performance audit and Sunset
Review of the Department of Administration, Personnel Division, pursuant to a
December 13, 1991, resolution of the Joint Legislative Oversight Committee. The audit
was conducted as part of the Sunset Review set forth in Arizona Revised Statutes
(A.R.S.) §§41-2951 through 41-2957, and is the first of six audits scheduled on the
Department.
A comprehensive reform effort is needed to ange Arizona's hiring system to allow
agencies increased flexibility and service. Such re rm will require revision of rules and
statutes that restrict agencies' hiring options. In addi n, more immediate changes in the
Division's operating practices are also needed, incl ing the use of supplemental
applications, increased participation of agency supervisors' candidate evaluations, and
recruiting at colleges and job fairs.
DOA Needs To Address Fundamental
Problems With The State's Classification System
(see pages t3 through 17)
Arizona's classification system is not being properly maintained or managed. ~\ 'Ie
positions should be reviewed periodically to ensure that job duties, qualifications, an
compensation are still appropriate, in the last 5 years, the Personnel Division has
conducted reviews of only 22 percent of the 1,500 classifications In State government.
According t DOA officials, regular classification reviews were discontinued because
there was not ough funding to implement salary upgrades which often result from
such reviews. Ho ver, failure to maintain the system hampers the State's recruitment
efforts, and results in' appropriate employee compensation. While DOA is considering
significant changes to he classification system, their efforts may be premature,
particularly until an assess ent of needed changes is developed and funding issues are
addressed.
DOA Should Improve Efforts To
Inform Decision Makers On Salary
(see pages 19 through 23)
DOA Needs To More Proactively Manage
Its Employee Health Benefits Program
(see pages 25 through 30)
Although Sti;1te employees are an essential resou e of State government, employee
salaries have not remained competitive. While State sa ries were only 7 percent behind
the market in 1988, lack of salary increases has now wide d the gap to over 22 percent.
As a result, State agencies have difficulty attracting a d retaining high-quality
employees. While DOA is responsible for presenting salary commendations to the
Legislature, it has based these recommendations on available nding rather than
presenting the results of its analysis to policymakers and allowing the to determine the
course of action. As the State's expert on compensation, DOA needs 0 provide the
Governor and Legislature with timely, objective, and comprehensive rep detailing
various alternatives.
The Personnel Division needs to more proactively manage State employee health care
insurance benefits. In 1992, in an effort to meet the Governor's demand that there be no
increases in State fu

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LEGISLATIVE OVERSIGHT
HEALTH INSURANCE BENEFITS
REVIEW COMMITTEE
FINAL REPORT
December 1993
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TABLE OF CONTENTS
Final Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Page 1
Background page 1
Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. page 1
Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. page 3
Recommendations '. . . . . . . . . . . . . . . .. page 6
Attachments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. A through N
Statutory Authority Attachment A
Meeting Notice/Minutes of 10/28/93 meeting Attachment B
Meeting Notice/Minutes of 11/30/93 meeting Attachment C
Excerpts from Auditor General's Performance
Audit of DOA Personnel Division Attachment 0
Overview of State of Arizona Health
Insurance Benefits Attachment E
Claims Audit of Interflex Attachment F
Intergroup's Response to Claims Audit Attachment G
Correspondence from AAUP Attachment H
DOA's Response to AAUP Attachment I
Intergroup's Response to AAUP Attachment J
DOA Materials Comparing Urban and Rural
State Employee Health Insurance Attachment K
Description/Historical Overview of Retiree
Health Insurance Program Attachment L
DOA Materials Concerning Retiree
Health Insurance Coverage ,. Attachment M
Letter Requesting Attorney General's
Opinion Regarding Reblending Issue Attachment N
The Committee consists of the following 12 members:
In addition to the Committee's prescribed on-going statutory duties, the Committee was
charged with reporting the legislature on the following issues before December 31, 1993:
Laws 1993, Chapter 176 established the Legislative Oversight Health Insurance Benefits
Review Committee to consider issues concerning state employee health insurance
coverage, including issues relating to the size of the risk pool and the type of coverage
provided to active and retired state employees.
FINAL REPORT
Rep. Brenda Burns
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Background
Composition
LEGISLATIVE OVERSIGHT
HEALTH INSURANCE BENEFITS
REVIEW COMMITIEE
1. the feasibility of grouping former state employees or former elected officials
or their dependents with officers and employees of this state and its
departments and agencies or the dependents of these employees as
necessary to obtain health and accident coverage at favorable rates;
2. any discrepancies between insurance plans offered in rural and urban
counties and methods to minimize on eliminate such discrepancies;
3. methods to allow former employees who terminated insurance coverage
provided by the Department of Administration between August 1, 1992 and
December 31, 1992 to re- enroll for the same or similar coverage in one
of the insurance programs provided by DOA; and
4. the feasibility of allowing any AHCCCS provider to respond to any request
for proposals or for bids initiated by DOA to procure health and accident
coverage for full-time officers and employees of the State and its
departments and agencies,
Speaker (or designee)
House
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Minority Party Leader (or designee) Rep. Eden
Three members appointed by the Speaker,
each from different legislative districts
and no more than two from the same political
party, as follows:
One member from a legislative district
whose boundaries lie wholly within a
county with a population of at least
500,000 persons Rep. Conner*
One member from a legislative district
whose boundaries lie wholly or partially
within a county with less than 500,000
persons Rep. Ortega
One member from a legislative district
whose boundaries include a state
university . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rep. Edens
(*Rep. Conner replaced Rep. Hershberger)
Senate
President (or designee) Senator Brewer
Minority Party Leader (or designee) Sen. Hardt
Three members appointed by the President,
each from differ.ent legislative districts
and no more than two from the same political
party. as follows:
One member from a legislative district
whose boundaries lie wholly within a
county with a population of at least
500,000 persons Sen. Soltero
One member from a legislative district
whose boundaries lie wholly or partially
within a county with less than 500,000
persons Sen. Springer
One member from a legislative district
whose boundaries include a state
university . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sen. Hermon
One member appointed by the Board of Regents . . . . . . . . . . . . . . . . Prof. Williams
One member appointed by the Supreme Court . . . . . . . . . . . . . . . . Connie Butchee
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Proceedings
The Committee held two public hearings for the purpose of considering the issues to be
reported on before December 31, 1993, as follows:
October 28, 1993
The Committee's first public hearing focused primarily on the performance of Intergroup.
One of the impetuses for legislation creating the Legislative Oversight Health Insurance
Benefits Review Committee were complaints concerning the performance of Intergroup's
Interflex program. Many state employees had selected coverage under Interflex with the
the impression it was an indemnity plan. They were dismayed to learn it is actually a
hybrid plan with both managed care and traditional fee for service features. Additionally,
legislators received numerous complaints about the quality of care received under the
Intergroup/lnterflex and about the discrepancies between coverage offered to state
employees residing in metropolitan areas versus those residing in rural areas. Another
common complaint was the issue of increasing health care costs.
Sandra Spellman, Senior Manager with Ernst and Young, presented a histOrical overview
of health care trends for the Committee, noting that managed health care was the trend
across the nation. Following Ms. Spellman's presentation, J. Elliott Hibbs, Director of the
Department of Administration presented an overview of health insurance benefits offered
to state employees. Mr. Hibbs noted that at the time he became director of DOA, the
State was faced with three problems concerning health care coverage for state
employees: 1) there was a lack of incentIve for competItive bids; 2) employees were not
reqUired to make cost conscious decisions about their health coverage; and 3) there
was not suffIcient managed care options in rural communities. Mr. Hibbs went on to
recount how these three problems affected decisions made at the time contracts were
let for the current plan year and to discuss the coverage options available to state
employees.
Mr. Hibbs acknowledged that there were indeed problems with Intergroup's Interflex
program and that DOA was going to impose sanctions on Intergroup for failing to meet
certain performance standards prescribed in their contract with the State. He explained
that when setting the penalty amount, DOA had taken into consideration that there were
mitigating circumstances surrounding Interflex's failure to meet cert8in performance
standards. Mr. Hibbs also informed the Committee that DOA was going to submit a
RFP for indemnity coverage for employees in Maricopa and Pima counties.
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The CommIttee heard next from Gary Petersen, Consulting Actuary with the Wyatt
Company, who summarized the Claims Audit of Interflex in which it was found Interflex
had failed to meet certain performance standards specified in its contract with the State
and which Mr. Hibbs had referenced in his remarks about imposing sanctions on
Intergroup.
Rick Barrett, President and CEO of Intergroup Health Care Corporation, responded to
the Claims Audit and to complaints rendered against Intergroup and the Interflex
program, noting the following: 1) only 3% of state employees were in fact enrolled under
the Interflex program; 2) the Interflex plan had in fact failed to meet the prescribed
criteria, some of it through no fault of their own; 3) Intergroup will strive to make
improvements where needed; and 4) Intergroup remains committed to providing the best
health care at a reasonable cost.
The Committee heard next from Ruth Kolb Smith, Chairman of the Arizona Conference
of the American Association of University Professors (AAUP) Benefits Committee. Mrs.
Smith and other members of AAUP had a number of complaints and recommendations
for improving the health care benefits offered state employees.
The major areas of complaint and resulting recommendations expressed by AAUP and
other persons who testified on their own behalf were the follOWIng:
1) they requested a true indemnity plan be offered to all state employees anci
that the costs for this more expensive coverage be subsidized by the State
and/or employees;
2) they wanted Intergroup to meet certain performance standards and to be
sanctioned for not having done so previously;
3) they wanted quality of care standards prescribed in any contract for state
employee health insurance;
4) they wanted state employees represented on all groups having input into
decisions involving health insurance coverage for state employees; and
5) they requested better information be made available to state employees
concerning their health insurance coverage.
[Refer to Attachment B for minutes of the October 28, 1993 meeting]
November 30. 1993
During the Committee's second public hearing, the Committee adopted
recommendations based on testimony received at the October 28, 1993 meeting and
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proceeded to receive testimony concerning other issues the Committee was charged
with reporting on before December 31, 1993.
Bill Bell. Assistant Director of DOA's Personnel Division, gave an overview comparing
health insurance benefits available to state employees in rural and urban counties. The
Committee was charged with looking at this issue primarily because legislators had
received complaints from state employees residing in both rural and metropolitan areas
that their health insurance options were not the same nor even comparable. The
Committee discussed how contracts are let (ie. on a statewide versus regional basIs)
and the merits and drawbacks of each approach.
The Committee next considered issues affecting health care coverage offered through
DOA to retired state employees. This became an issue for consideration by the
Legislature during the 1993 session and as a study item for this Committee as a result
of a changp, in policy on the part of DOA concerning retirees whereby DOA decided to
"unblend" retirees from the active pool for the purpose of procuring health insurance.
DOA based its decision on the following: 1) statutory interpretation; 2) an informal
Attorney General's opinion: 3) cost containment considerations: and 4) maintaining panty
with other state retirees. [Note: Unlike other state retirees who received health Insurance
coverage under the program administered by ASRS. retirees receiving coverage through
DOA were having their health care costs subsidized twice: a) their state retirement
system was paying the prescribed subsidy amount; and b) state actIve employees were
reportedly paying approximately $4.6 M more in premiums to offset retirees' higher
health Insurance costs.) This change in policy resulted in substantially hIgher health
insurance costs for state retirees receiving coverage and an outpouring of negative
publicity with the call for legislative intervention.
Staff provided a description and historical overview of the Retiree Health Insurance
Benefit Program established by the Legislature in 1988 to assist state retirees with their
health insurance costs. [Refer to Attachment L] The Committee also heard from DOA
and the Arizona State Retirement System (ASRS) concerning their coverage of state
retirees. Based on testimony received, the Committee recommended "reblending'
retirees with the active pool for the purpose of procuring health insurance coverage for
state employees and further recommended that any retirees who were previously
covered under DOA when the decision was made to separate retirees as a distinct
group and who transferred to other coverage (either through the State or a private
carrier) should be permitted to re-enroll under coverage administ.ered by DOA The
Committee requested a formal opinion from the Attorney General's Office concerning the
retiree reblending issue.
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The Committee recommended deferring the final issue it was charged with looking at
concerning AHCCCS and state employee health insurance until a later time.
[Refer to Attachment C for minutes of the November 30, 1993 meeting.]
Recommendations
The Committee made the following recommendations:
Recommendations based on October 28. 1993 meeting:
Re: Indemnity Coverage
1. DOA should offer an indemnity plan to all state employees.
2. State and/or employee subsidization of a more costly indemnity plan
should remain an issue for further discussion by the Committee.
Re: RFP Process
1. Specific guidelines concerning quality of care should be included in any
RFP concerning state employee health insurance coverage.
2. The Committee should be allowed to have input into determining the
contents of an RFP for state employee health insurance coverage.
3. Public notification should be given of pre-bid conferences held to discuss
state employee health insurance contracts.
Re: Contracts
1. DOA shall provide penalties for noncompliance of contract
provisions/standards within the time periods specified in the contract.
2. Specific performance standards concerning quality of care should be
included as part of the contract.
3. DOA shall provide quarterly reports on the performance of contracted
insurers to the Committee for review.
Re: Information
1. DOA should provide better, more accurate Information to state employees
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about their coverage through the DOA health newsletter, seminars and
other means.
2. State employees should be represented on all groups having input into any
decisions regarding state employee health insurance coverage.
Re: Other Recommendations
1. DOA should examine the feasibility of expanding the two-tiered approach
to coverage.
2. DOA should look into the feasibility of allowing larger quantity purchases
of prescription medication by insurance subscribers.
Recommendations based on November 30, 1993 meeting
Re: Rural and Urban Coverage
1. DOA should solicit bids for state employee health insurance coverage on
a statewide basis.
Re: Retiree Coverage
1. Retirees covered through DOA should be reblended with the active state
employee pool.
2. A formal opinion from the Attorney General should be requested
concerning the reblending issue.
3. Retirees who were previously enrolled under health insurance coverage
offered through DOA at the time the decision was made t? separate
retirees as a distinct group and who transferred to other coverage (either
through the State or a private carrier) should be permitted to re-enroll
under coverage administered by DOA.
Re: AHCCCS Coverage
1. Discussion of this issue should be deferred to a later time.
Staff was asked to prepare legislation accordingly to implement the Committee's
recommendations.
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ATTACHMENT A
Statutory Authority
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LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEPITS REVIEW COMMITTEE
(A. R. S. 38-655)
(Authorized by Laws 1993, Chapter 176)
Laws 1993, Chapter 176:
Sec. 4. Title 38, chapter 4, article 4, Arizona Revised
Statutes, is amended by adding section 38-655, to read:
38-655. Legislative oversight health insurance benefits
review committee
A. The legislative oversight health insurance benefits review
committee is established consisting of the following members:
1. The speaker of the house of representatives, or his
designee.
2. The president of the senate, or his designee.
3. The leader of the minority party of the house of
representatives, or his designee.
4. The leader of the minority party of the senate, or his
designee.
5. Three members of the house of representatives who are
appointed by the speaker of the house of representatives, no more
than one of whom shall be from the same legislative district and no
more than two of whom shall be members of the same political party.
One member shall represent a legislative district whose boundaries
lie wholly within a county with a population of five hundred
thousand or more persons, one member shall represent a legislative
district whose boundaries lie wholly or partially within a county
with less than five hundred thousand persons and one member shall
represent a legislative district whose boundaries include a state
university.
6. Three members of the senate who are appointed by the
president of the senate, no more than one of whom shall be from the
same legislative district and no more than two of whom shall be
members of the same political party. One member shall represent a
legislative district whose boundaries lie wholly within a county
with a population of five hundred thousand or more persons, one
member shall represent a legislative district whose boundaries lie
wholly or partially within a county with less than five hundred
thousand persons and one member shall represent a legislative
district whose boundaries include a state university.
7. One member appointed by the board of regents.
8. One member appointed by the arizona supreme court.
B. The speaker of the house of representatives and the
president of the senate shall serve as cochairmen of the committee.
C. The committee shall meet at least once a year and may hold
meetings at such times determined to 6e necessary by either
cochairman or the cochairmen of the committee for the purpose of
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considering issues concerning state employee medical and dental
insurance coverage, including issues relating to the size of the
risk pool ana the type of coverage provided to state employees.
D. The director of the department of administration shall
inform the committee of any changes being considered by the
department with respect to a request for proposals for state
employee medical and dental insurance coverage, including decisions
affecting the size of the risk pool and the type of coverage
provided to state employees.
E. The director of the department of administration shall
brief the committee in executive session about the contract that
the department intends to award for state employee medical and
dental insurance coverage. Information provided in executive
session shall remain confidential until the contract award is made
in compliance with title 41, chapter 23.
F. Members of the committee appointed pursuant to subsection
a, paragraphs 7 and 8 of this section, shall serve two year terms.
G. Members of the committee are not eligible to receive
compensation for their services but are eligible to receive
reimbursement for their expenses under chapter 4, article 2 of this
title.
Th. co..i~~•• T.rmin.~••: ongoing.
Sec. 5. Legislative oversight health insurance benefits
review committee; additional duties;
recommendations
A. In addition to the duties specified pursuant to section
38-655, Arizona Revised Statutes, as added by this act, the
legislative oversight health insurance benefits review committee
~al~ .
. ~ study and make recommendations to the,legislature on the
feasibility of grouping former state employees or former elected
officials or their dependents with officers and employees of this
state and its departments and agencies or the dependents of these
employees as necessa~ to obtain health and accident coverage at
favomle rates.
2 Identify discrepancies between insurance plans offered in
rura and urban counties and recommend to the legislature methods
to m~''mize or eliminate such discrepancies.
Identify and recommend to the legislature methods to allow
form employees who terminated insurance coverage provided by the
department of administration between August 1, 1992 and December
31, 1992 to reenroll for the same or similar coverage in one of the
insurnce programs provided by the department of administration.
4 Study and make recommendations to the legislature on the
feas ility of allowing any Arizona health care cost containment
system provider to respond to any request for proposals or for bids
initiated by the department of administration to procure health and
accident coverage for full-time officers and employees of the state
and its departments and agencies.
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Members:
1- (R) B. Burns Speaker, or designee, Cochair
2. (R) Brewer President, or designee, Cochair
3. (D) Eden House Minority Leader, or designee
4. (D) Hardt Senate Minority Leader, or designee
B. Recommendations made pursuant to subsection A of this
section shall be submitted to the legislature on or before December
31, 1993.
Section 5 of this act is repealed trom and atter January 1, 1994.
House Members Appointed April 1993.
Three members of the senate who are appointed by the president
of the senate, no more than one of whom shall be from the same
legislative district and no more than two of whom shall be members
of the same political party. One member shall represent a
legislative district whose boundaries lie wholly within a county
with a population of five hundred thousand or more persons, one
member shall represent a legislative district whose boundaries lie
wholly or partially within a county with less than five hundred
thousand persons and one member shall represent a legislative
district whose boundaries include a state university.
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Senator
Senator
Senator
Representative
Representative
5. (R) Edens Representative
6. (R) Conner
7. (D) ortega
8. (R) Springer
9. (R) Hermon
10. (D) Soltero
Three members of the house of representatives who are
appointed by the speaker of the house of representatives, no more
than one of whom shall be from the same legislative district and no
more than two of whom shall be members of the same political party.
One member shall represent a legislative district whose boundaries
lie wholly within a county with a population of five hundred
thousand or more persons, one member shall represent a legislative
district whose boundaries lie wholly or partially within a county
with less than five hundred thousand persons and one member shall
represent a legislative district whose boundaries include a state
university.
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11. Prof. Frank ~4i 11 i ams Member appointed by the Board of Regents
12. Connie Butchee Member appointed by the Arizona Supreme
Court
STAFF: Hardy
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ATTACHMENT B
Notice/Minutes of 10/28/93 Meeting
10/21/93
ARIZONA STATE LEGISLATURE
I N T E RIM ME E TIN G NOT ICE
AGENDA
Representative Brenda Burns
Cochairman
Representative Eden
Representative Edens
Representative Conner
Representative Ortega
Senator Jan Brewer
Cochairman
'Senator Hardt
Senator Hermon
Senator Springer
Senator Soltero
Connie Butchee, Supreme Court appointee
Professor Frank Williams, Board of Regents appointee
Open to the Public
LEGISLATIVE OVERSIGHT HEALTH INSURANCE BENEFITS REVIEW COMMITTEE
1. Call to order
2. Discussion of committee's purpose and scope of first meeting
3. Presentation - Historical overview of health care trends
4. Presentation by DOA - Overview of state employee health insurance
benefits .
5. Presentation by the Wyatt Company ~ Summary of the Claims Audit of
Interf1ex
6. Presentation by Intergroup
7. Presentation by the American Association of University Professors, AZ
Conference, Benefits Committee
8. Public Testimony
9. If time permits - Presentation by the Department of Administration
comparing hea~th insurance benefits offered state employees in rural
and urban counties
10. Schedule next meeting
11. Adjourn
MEMBERS:
PLACE: House Hearing Room 3
SUBJECT: Review of State Employee Health Insurance Benefits
DATE: Thursday, October 28, 1993
TIME: . 10:30 a.m.
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Members Absent
Members Present
Speakers Present
Representative Eden
Senator Brewer, Cochair (Excused)
NOV 05 1993
RECEIVED
CHI~~ CLERK'S OFFICE
Minutes of Meeting
Thursday, October 28, 1993
House Hearing Room 3 - 10:30 a.m.
ARIZONA STATE LEGISLATURE
Forty-first Legislature - First Regular Session
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
10/28/93
Connie Butchee, Supreme Court Appointee
Representative Conner
Representative Edens
Senator Hardt
Senator Hermon
Representative Ortega
Senator Soltero
Senator Springer
Professor Frank Williams, Board of Regents Appointee
Representative B. Burns, Cochair
Sandy Spellman, Senior Manager, Ernst &Young
J. Elliott Hibbs, Director, Arizona Department of Administration (DOA)
Gary L. Petersen, Senior Consulting Actuary, The Wyatt Company
Rick Barrett, CEO, Intergroup Healthcare Corporation
Ruth Kolb Smith, Chair of the Benefits Committee, Arizona Conference of the
American Association of University Professors, Tucson
Dr. John Sullivan, President and Medical Director, University Physicians,
University Medical Center, Tucson
David Mendoza, Legislative Director, American Federation of State, County and
Municipal Employees (AFSCME)
Jacqueline Sharkey, Vice Chair of the Benefits Committee, Arizona Conference of
the American Association of University Professors (AAUP), Tucson
Susan Gallinger, Director, Department of Insurance (001), (submitted written
note)
(Tape 1, Side A)
The meeting was called to order at 10:35 a.m. by Cochairman B. Burns and roll
call was taken.
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Norma Greer, Researcher, Benefits Committee, Arizona Conference of the American
Association of University Professors (AAUP) , Tucson
Dr. Carol Bernstein, President, American Association of University Professors
(AAUP) , Tucson •
Anne Schutte, Faculty Associate, Arizona State University (ASU) , Tempe,
representing herself
Dr. Harvey A. Smith, Professor, Arizona State University (ASU) , Tempe,
representing himself
Dr. Mel Firestone, Associate Professor, Arizona State University (ASU), Tempe,
representing himself
Robert E. McConnell, Tucson, representing himself
Jane Baez, Motor Vehicle Customer Service, Flagstaff, representing herself
Ruth Stokes, Tucson, representing herself
Vernette Fitzpatrick, Tucson, representing herself
Art Weese, Flagstaff, representing himself'
Dr. Robert J. Letson, University of Arizona Retirees Association Legislative
Committee, Tucson
Louise Muir, representing herself
Tedde Scharf, Associate Director, Disabled Resources, Arizona State University
(ASU) , Tempe
Jim Hemauer, Senior Program Coordinator, Arizona State University (ASU), Tempe
Sherry Santee, Physical Therapist, Tucson, representing herself
Carol Long, representing herself
Mary E. Green, Professor Emerita, Arizona State University (ASU), Tempe,
representing herself
Dr. David W. Smith, Chair, Legislative Committee, University of Arizona, Tucson
Roger Carter, representing himself
Carole Dow, representing herself
Eli Kaminsky, Professor Emeritus of Political Science, Arizona State University
(ASU) , Tempe, representing himself .
Christy Bison, Tempe, representing herself
Marianne Alcorn (submitted copy of remarks in lieu of testifying)
Guest List (Attachment 1)
PRESENTATIONS
Mrs. Burns stated that she anticipates this Committee in the future to meet on
an annual basis, just prior to the signing of the contract for health insurance
for State employees. She said that in the meantime, however, in order for the
Committee to have a better understanding of what has transpired and future
options available in health care coverage for State employees, today's meeting
will include an overview of the changes being made in health care, a presentation
by the Department of Administration (DOA) citing what health insurance is
available to State employees, and public testimony from State employees about
their concerns with Intergroup and Interflex.
Sandy Spellman, Senior Manager, Ernst &Young, with the aid of slides, presented
a hi stori ca1 perspective and trends in managed care. She noted that in the
1930's Blue Cross and Blue Shield Plans were among the first to use the concept
of insurance for health care. The national HMO (Health Maintenance Organization)
Act of 1973 offered federal monies for development and operation of HMO's and
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required employers to offer an HMO option to their employees. In 1982, Arizona
became the first state in the nation to pass enabling legislation to provide
managed care, which is the AHCCCS program (Arizona Health Care Cost Containment
System). From that date until present, Arizona has seen an incredible increase
in interest and penetration of managed care in the State, which is also
indicative of what is happening around the country, and most of President
Clinton's health care proposals include a managed care provision.
Ms. Spellman explained that in a managed care plan, health care providers assume
the financial risk for offering health care services to their patients. If
expenses exceed revenues, the managed care plan is at risk for the loss, which
may be shared with the physicians and hospitals included in the arrangement.
In an indemnity plan, the insurance company takes the sole financial risk. Ms.
Spellman pointed out that the managed care plan increases provider incentive to
control costs and offer health maintenance aod preventative care for the patient.
She added that most managed care plans use a primary physician for contact of
care and said that statistics show that physician contacts in an HMO environment,
per capita, r~nk more than 77 percent below those contacts in an indemnity plan.
While the indemnity plan was once the most popular of the two (indemnity and
managed care), by 1988 the number of people choosing an indemnity plan had
decreased by 50 percent.
Ms. Spellman opined that the trend across the nation is toward managed health
care. She said that there are many common elements among the various plans being
-considered by Congress. Among the most common is the managed care element. At
this point, a managed care plan is the preferred option in President Clinton's
plan. She said, too, that the trend in Arizona closely parallels national data,
with the penetration of managed care ranking in the commercial sector from 30
percent to 60 percent, depending on what is included. She also noted that 100
percent of Medicaid patients enjoy managed care health insurance. Ms. Spellman
stated that most of the national proposals, and President Clinton's in
particular, provide for an in-plan and ~ut-of-plan rate.
Mrs. Burns raised a concern that managed care plans Jack incentives for good
patient care. Ms. Spellman conceded that while this historically has been a
concern shared by many, the cost containment element does require looking at the
resource consumption side of the issue, and said that studies indicate that
sometimes the over-abundance of medical services can be just as much a concern
as a lack of service. She agreed, however, that patient care is of primary
importance.
J. Elliott Hibbs. Director. Arizona Department of Administration (DOA) , stated
that DOA is very sensitive to the importance of the health benefits program, for
both employees and the taxpayers of the State. He said that Bill Bell, Assistant
Director, in charge of the Personnel Division; Mary Ann Knight, in charge of the
Benefits/Insurance Unit; and Stuart Goodman, Legislative Liaison, are available
to assist employees with any problems they have with their insurance coverage.
Mr. Hibbs said that in March 1992, when he assumed leadership of DOA, he found
that the State had rapidly growing employee health insurance expenses, with a
potential $44 million increase in costs to be paid either by the State or its
employees. There were three problems to be addressed at that time: 1) a lack
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of incentive for competitive bids; 2) employees were not required to make cost
conscious decisions about their health coverage; and 3) while there were some
indications that there was some managed care in rural communities, that actually
was not true. The result was a potential $44 million increase at a time when
the State was trying to balance the bUdget with limited revenues. He said that
with some programs being cut and employees not receiving a pay increase, it was
felt that employees would not be able to withstand a substantial increase in
health care costs. Therefore, the State's health care contract was put out for
bid. This provided competition among the various providers. The result of the
new contract is that DOA has begun to manage rural health care costs more
effectively than ever before and employees have now become responsible consumers
of health care. By shifting to lower-cost programs, instead of an increase of
$44 million, employee health care premiums have become stabilized.
Mr. Hibbs explained that because the AugJ.lst 1 renewal date with an open­enrollment
period held in June and July is inconvenient for many employees, the
start date for the policy period has been changed to October 1 of each year,
giving employees a better opportunity for making informed decisions. He added
that in virtually every county in the State there is now an opportunity to enroll
in an HMO plan. He noted, however, that the Flagstaff area is the only area in
the State without an HMO opportunity.
Mr. Hibbs stated that through complaints received throughout the past year, DOA
learned that coverage of durable medical equipment was omitted from the new
contract with Intergroup. Intergroup has now restored that coverage and made
it retroactive to the beginning of the plan. Mr. Hibbs reported that among other
improvements to the plan under consideration is an expansion of the tiered system
beyond the current two tiers for individual and family coverage. There are
multi-tiered systems that can provide for individuals, two people (state employee
and spouse), three people (state employee, spouse and child), etc. Also, DOA
would like to invite bids on an indemnity program. Currently, there is no
indemnity option for employees since Interflex is not a true indemnity program. . .
Mr. Hi bbs said that although providers were invited to bid on an indemnity" u1
program in the last bid process, no one did, so no contract was awarded for this
option. He added that although DOA believes this option will be very high cost,
the Department would like to be able to offer this plan to State employees. He
assured the Committee that DOA wi 11 gi ve seri ous cons iderat ion to any other
opt ions that may be recommended to improve the quality of the State health
benefits program.
Mr. Hibbs commented on concerns that have been raised about the performance of
the Interflex program. He noted that only 3 percent (1,388) of State employees
are enrolled in this program. Mr. Hibbs cited the standards that must be adhered
to by Interflex or risk assessment of penalties. Payment of claims must be paid
within fourteen days, with a 95 percent accuracy rate on technical matters and
99 percent accuracy on dollar amounts of reimbursements. Mr. Hibbs said that
for a period of time Interflex was not meeting these standards. According to
an audit conducted by The Wyatt Company, Interflex was in violation of all of
these standards for part or all of the plan year. However, DOA determined that
there were mitigating circumstances that should be taken into consideration
before penaIt ies were assessed. There were some commun icat ion problems and
problems in transferring employee information to the new program. There also
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was the issue of coverage for durable medical equipment that had to be resolved
and claims for those items that had to be reexamined. All of these things
contri buted to di ffi cult ies in gett i ng the new program operat i ona1. DOA
determined that it would be appropriate to assess penalties if the plan did not
measure up to standards in the last six months of the year. The Wyatt Company
audit revealed that during that last six months, two standards were not met for
the full six months and three standards were not met for four of the six months.
Mr. Hibbs said that DOA has informed Intergroup that penalties have been assessed
for the violations in the Interflex plan. He added that DOA will continue to
monitor Interflex and take whatever appropriate action is necessary to ensure
that the standards in their contract are being adhered to.
Mr. Edens stated that he has gotten stacks of letters about the service being
provided by Interflex. He admonished Mr. Hibbs that discussions involving the
problems with Interflex have been going on since last December and said that he
is concerned that it has taken until October 1993 for DOA to apply sanctions on
Interflex for its violations of contract standards. He submitted that in order
to represent both employees and the State in the best possible manner, it is
important that DOA ensure that providers are in compl i ance with contract
standards and DOA's reaction to contract violations be better than one year.
He stressed that when the bid goes out for the new indemnity plan, providers must
be advised that adherence to contract standards is expected or the provider will
be penalized.
Mr. Hibbs responded that this is the first time that DOA has ever issued a
penalty against a provider. He pointed out that DOA has met with Intergroup and
di scussed the probl ems that have occurred. He opi ned that Intergroup is
concerned about the performance of the Interflex plan and has worked hard the
past year to address the problems.
Mr. Edens rei terated that the State needs to set a pattern of enforci ng
contracts.
Mr. Ortega asked if the State has a basic benefits package that goes out to bid.
Mr. Hibbs answered that while some specific levels of coverage are required, in
order to give potential bidders an opportunity to submit innovative. approaches,
he thinks it is better to allow flexibility and invite bids on a variety of
packages rather than restrict bidding to just one package.
Mr. Ortega asked Mr. Hibbs, in his roJe as Director of DOA, if he feels it is
his role to implement public policy or determine public policy. Mr. Hibbs
replied that he thinks he only has the ability to determine public policy in the
areas the Legislature has given him the right to do so.
Senator Hardt protested Mr. Hibbs' statement that there are HMO plans in every
county. Mr. Hibbs answered that according to the information DOA has, there is
an HMO plan available in every county.
Senator Hardt said that he is concerned about why there aren't more bidders on
the health benefits package. Mr. Hibbs said that while he doesn't know the
reason in every case, in 1992, when the current contract went out to bid, it was
at the same time that AHCCCS was gatheri ng bids for thei r program. Many
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companies were working on bidding the AHCCCS contract, so perhaps if the timing
had been different, there may have been more bidders on the employee benefits
package.
Senator Hardt asked Mr. Hibbs if any consideration has been given to allowing
AHCCCS to bid on the employee benefits package. Mr. Hibbs responded that AHCCCS
was given an opportunity to bid on the package in 1992. He said that while DOA
is not suggesting moving State employees into AHCCCS, there may be an advantage
in using the same type of insurance companies that provide their insurance
coverage and in utilizing the expertise of AHCCCS people in negotiating
contracts.
Mrs. Burns asked if the sanctions that have been applied to Interflex were for
the full amount allowable under the contract. Mr. Hibbs answered affirmatively,
saying that the penalty assessed to Interflex for the last six-month period was
in the full amount allowable of $51,839 under the terms of the contract.
Mrs. Burns asked Mr. Hibbs when the penalty payment is due. Mr. Hibbs replied
that a letter was sent to Interflex notifying them that the penalty payment is
due by November 15, 1993.
Mrs. Burns said that she, too, has gotten stacks of letters with heart-wrenching
stories about the quality of care being provided by Interflex. She added that
many people want the opportunity to have an indemnity plan, and said that she
is pleased such a plan will be offered in the future. She also stated that a
tiered system was suggested in some of the letters.
(Tape 1, Side B)
Mr. Conner raised the question of how employees are notified about the changes
and programs available in the benefits package. Mr. Hibbs replied that DOA
issued a newsletter containing information about the benefits that are available
to State employees. He said that meetings were also held throughout the State
and an Employees' Advisory Committee assists employees with questions about their
insurance coverage.
Mr. Edens asked Mr. Hibbs for the amount of the annual premium paid to
Intergroup. Mr. Hibbs said that while he doesn't have that information at this
time, he will provide the amount to the Committee later.
Mr. Edens inquired as to how the Committee will keep abreast of problems and
assess quality control for providers in the future. Mr. Hibbs replied that the
Committee only has to ask and DOA will provide whatever information is requested.
He noted, however, that the benefits package contract cl early states what
penalties will be assessed and how; it is not something that can be assessed at
wi 11.
Mr. Edens submitted that there should be some type of regular reporting so that
the Committee can know what the providers are doing. Mr. Hibbs said that if that
is what the Committee would like, he would be happy to provide that information.
He added that within six months another audit of Interflex will be conducted and
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DOA will continue to monitor them. If it is found that Interflex is not
complying with contract standards, appropriate action will be taken.
Mrs. Burns suggested she and Mr. Edens work with Mr. Hibbs to determine what data
would be appropriate to be included in the report DOA will provide the Committee.
Mrs. Burns noted that most of the penalties being assessed on Interflex are in
regard to how quickly claims are being processed. She said that she is more
concerned with the quality-of-care issue. She added that some of the concerns
expressed in the letters she has received relate to procedures that weren't
approved. She submitted that there should be some quality control on this kind
of issue. Mr. Hibbs noted that there have been some occasions when employees
have sat down with Intergroup and worked out thei r probl ems to the mutual
satisfaction of the provider and employee.
Gary L. Peterson. Senior Consulting Actuary. The Wyatt Company, stated that of
the four health-care claims audits The Wyatt Company has performed over the past
four years, one was on Intergroup. He noted that Intergroup was very cooperative
with the auditors and agreed with the results of the audit. He explained that
the audit involved 300 claims in the Interflex program. These claims were
evaluated for turn-around time and whether they were processed properly, and also
correctness of diagnosis and date of service. Mr. Peterson said that of these
300 claims, 23 errors were identified (7.7 percent) in the area of diagnosis and
date of service, while the State's performance standard is 95 percent. In the
area of errors in payments, 34 errors (11.3 percent) were identified, averaging
$24 each, while the performance standard is 95 percent. At $24 each for 34
errors, the net payment error was $818, out of a total payout of $24,638 (3.3
percent), while the performance standard is 100 percent. The performance
standard for turn-around time in payment of claims is fourteen days. Of the 300
claims audited, 100 were paid in fifteen days or more.
Rick Barrett. CEO. Intergroup Healthcare Corporation, distributed a copy of his
remarks (Attachment 2), relating to the history of Intergroup's relationship with
the State. He noted that Intergroup first received the award to service State
employees in 1984. He said that 5,000 employees joined the plan that year. By
1988 that figure rose to 21,000, in 1989 it grew again to 29,000, and in July,
1992, 33,500 State employees had chosen Intergroup's HMO, even though they were
offered other choices, including the subsidized indemnity plan. At this time,
the State's ability to support the subsidy to the indemnity plan became
unbearable, the reason being, affordability.
Mr. Barrett refuted the accusations against Intergroup of poor service and bad
doctors, saying that he doesn't think such accusations have much basis in fact.
He submitted that in 1992, the State made a courageous decision to move toward
a true managed competition model. By August of 1992, Intergroup's membership
had grown from 33,500 to 43,650. He said that he doesn't think this would have
been possible if the allegations being hurled at Intergroup were true. He noted
that Intergroup, the HMO plan, takes care of the largest portion of State
employees, with Interflex, the source of so many difficulties, having a
membership of only 3 percent of State employees.
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Mr. Barrett addressed the subject of profitability, saying that in 1988 and 1989,
the combined losses for HMOs in the State exceeded $100 mill ion; however,
Intergroup managed its business prudently enough to remain financially stable.
He submitted that today, that remains the same, with a financial performance that
is prudent, not excessive. Mr. Barrett added that Intergroup's medical loss
ratio (the percent of premium dollars that go directly to health care expense)
is 82.1 percent. The norm for the group of large, publicly traded, managed care
companies is 79.3 percent. Intergroup's net income is at 5.1 per cent, compared
to the group at 5.5 per cent. Mr. Barrett emphasized that a company such as
Intergroup must make profits to bui 1d its reserves in order to expand its
services, which is what Intergroup is doing. He noted that in the past 18
months, Intergroup has committed $27 million to medical group facility expansion
and equ ipment improvements to increase capac ity and servi ce throughout the State.
Mr. Barrett contended that Intergroup's profits are not exorbi tant, but are
ethical and go to serve the needs of all Arizonans, with over $1 million being
donated last year to worthy causes around the State.
Mrs. Burns s~id that she thinks a company should work toward 100 percent
satisfaction of its clients, rather than expressing satisfaction that a majority
are pleased. She related that the House staff contacted 81 State employees that
have used the Intergroup plan. She noted that 51 of those contacted were happy
with Intergroup; of the 30 who were unhappy, there were varying levels of
discontent. She said that the interesting thing about the differences in these
individuals is that the ones who were happy rarely used the system and those who
used the system a lot were the ones most likely to be unhappy.
Mr. Barrett responded that Intergroup's goal is always to have 100 percent
satisfaction from its members, but said that surveys indicate that there is a
direct correlation between those who are most satisfied and those who use the
system most frequently. He said that he would be happy to make the results of
those surveys available to the Committee. He added that satisfaction has moved
upward in the last six months. He noted, too, that Intergroup has spent a great
deal of money in the past few years in identifying problems and improving service
and satisfaction. He submitted that in comparing Intergroup nationally in terms
of service and quality of care, Intergroup is dramatically above the national
average, being 25th out of 600 in a recent study of HMOs. Mr. Barrett said that
he thinks Interflex has been tremendously improved and is now meeting the State's
standards. He opined that there is a profound truth that the last people into
a managed care system are those people who absolutely don't want to be there,
and as hard as Intergroup may try, there are always going to be some of those
people who it will be impossible to satisfy. Mr. Barrett stated that the overall
satisfaction with Intergroup, the HMO, in FY 93 in Phoenix is 91 percent, and
in Tucson it is the same, overall, at 91 percent.
Mrs. Burns told Mr. Barrett that her only concern is that he is saying that the
problems employees are having is because they want an indemnity plan.
Mr. Edens commented that there is only a certain length of time before the
frustration level reaches the highest point, and said that he thinks a year's
time is an adequate length of time for making improvements, and now they must
be made.
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Mr. Barrett responded that Intergroup fully recognizes the problems that have
occurred and cont i nues to devote all efforts of the company to customer
satisfaction. He said that he is just as distressed, or more so, than Mr. Edens
with the results of the Interflex survey.
Ruth Kolb Smith. Chair of the Benefits Committee, Arizona Conference of the
American Association of Unjversity Professors, Tucson, stated that she is
appearing before this Committee because State employees and their families are
suffering severely as a result of the current State health care contracts. Ms.
Smith also said that she is attending this meeting today to ask for new health
insurance contracts for employees of the State and said that the present
contract, bid in a hasty and irregular manner, is based on a callous or ignorant
philosophy, is not providing adequate and satisfactory care, and is in violation
of State law ARS §38-65l. She added that Intergroup is in violation of every
quantitative standard prescribed in the contract and said that it is not in the
State's interest to continue a contract which was arrived at on an impromptu
basis with a nonperforming contractor for more than a year.
Ms. Smith stated that the current contract incorporates a "no subsidization"
po1icy suggested by an Intergroup 1obbyi st ina 1etter to Mr. Hi bbs. She
submitted that while this policy appears fair, analysis exposes it. She said
that it would indeed be fair if all employees were the same; however,
statistically, HMOs are chosen by younger and healthier people, while the
disabled and others with serious health problems cannot withstand delay and
denials of tests, treatment and referrals commonly practiced by HMOs to minimize
-costs. The patients tend to choose an indemnity plan, if they can afford it,
so that they can get specialized care.
(Tape 2, Side A)
Ms. Smith submitted that Intergroup has been in chronic violation of meeting
State contract standards, but said that promises from Intergroup that it will
improve must be treated skeptically, ~ue to their long history of broken
promises. She stressed that the current health benefits contract is not working,
with too many lives being affected adversely and the consequences of denying
treatment to State employees being evident, and said that the State needs to
rebid the contract - but it needs to be done right this time! She stated that
the last time the contract was bid, it was done in haste, but said that if the
State starts now, it can be done properly this time.
Ms. Smith charged that Intergroup has demonstrated that it is incapable of paying
bills promptly and accurately, incapable of keeping records, incapable of
answering mail, and apparently incapable of receiving mail from the U.S. Post
Office and distributing it to the proper place in its organization. She further
charged that del ay and denial of appropriate medi cal treatment is causi ng
suffering to State employees, and noted that the cost to the State in time lost
from work, in employee frustration, and pain and suffering is enormous. Ms.
Smith said that she has received hundreds of letters of complaint reflecting a
lack of medical treatment and said that physicians are receiving bonuses for not
making referrals. She stressed the need for performance standards for HMOs to
be incorporated into the health benefits contract and a physician advocate to
help protect people from abuse by the HMOs in pursuit of the bottom line.
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Ms. Smith emphasized the need for adequate health care for all State employees
and said that it should not require droves of letters and newspaper headlines
to get that care. She submi tted that DOA is concerned wi th the welfare of
Intergroup and is not concerned with the welfare of State employees. Ms. Smith
contended that State employees have nowhere else to turn but to the Legislature
and said that she is pleading for a new contract to provide the adequate and
satisfactory health coverage that is needed. (Copy of full text of testimony ­Attachment
3.)
Mrs. Burns stated that she, too, is an unhappy Intergroup patient and said that
there is only one reason she is still with the plan - so that she can know what
other State employees are experiencing. She chastised Ms. Smith, however, for
distributing a paper (Attachment 4) implying that Mrs. Burns is working with
the American Association of University Professors and supporting their efforts
in getting the State's health benefits contract rebid. She said that she would
like the record to reflect that she was not a part of this movement and urged
Ms. Smith to be more careful in the future about giving the impression that
someone has a.part in something that they do not.
Mr. Edens asked Ms. Smith for her suggestions for preventing problems in the
future. Ms. Smith said that there needs to be representation from the
universities and the needs of the disabled and elderly must be met.
PUBLIC TESTIMONY
Dr. John Sullivan, President and Medical Director, University Physicians,
University Medical Center, Tucson, stated he is responsible for quality
assurance, peer review and ensuring that patients get the quality of care they
deserve, and personally responds to each compla i nt. He noted that 1,000
University Medical Center patients have been enrolled in the Intergroup health
plan, and said that of that number, he has only had two complaints this year.
David Mendoza, Legislative Director, American Federation of State, County and
Municipal Employees (AFSCME), submitted that health care reform is the key issue
today, and said that the bottom 1ine is that the current law allows DOA to
negotiate a health plan for State employees on a regional basis versus Statewide
basis, leading to a disparity of benefits and costs. He pointed out that
employees in urban areas were not given the option of an indemnity plan and there
is still not a viable HMO plan in Flagstaff after a year. He said that while
DOA has worked diligently to fix the accessibility and affordability of health
care for State employees, in view of the current problems, he supports an
oversight of any health plan negotiated by DOA in the future. He suggested that
this Committee support legislation which will reblend retirees with active
employees and move toward comparable benefits and costs being available to all
emp1oyees throughout the State. Mr. Mendoza stressed that the provi si on of
health care benefits and the decision to provide certain levels of benefits are
policy decisions that should be made by the Legislature.
Mr. Edens asked Mr. Mendoza if his group is doing any type of surveys regarding
satisfaction levels of State employees. Mr. Mendoza answered affirmatively,
saying that AFSCME has started tracking the complaints they have received, as
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well as conducting their own survey on employee satisfaction. He said that most
of the problems cited in the complaints AFSCME has received have come from
retirees, especially in the rural areas.
Jacqueline Sharkey, Vice Chair of the Benefits Committee, Arizona Conference of
the American Association of University Professors, Tucson, recommended that the ~
health benefi ts contract be rebid and an indemnity pl an be offered for employees. 3
She further recolm1ended that future contracts incorporate more speci fi c standards
regard ing qual ity of care and that State employees be represented on all
committees reviewing health care contracts, especially employees from elected
groups. Ms. Sharkey suggested that there should be a specified method provided"
for obtaining feedback from health care providers and some standardization of
the data received. She added that there should be a way for employees to get­more
comprehensive information about the health care plans offered and contracts ~
should be enforced for noncompliance. She questioned why Intergroup was allowed
a six-month leeway in spite of the provisions in the contract requiring the
provider to be reliable and experienced. She noted that Intergroup has used the
excuse of not having experience with this program, which is contradictory to the
terms of the contract. She pointed out that Intergroup went through an
invest igat i on a few years ago and was found to be out of comp1i ance in
reliability and experience in a previous plan, causing a delay of the Consent
Order from the Department of Insurance. She questioned why this wasn't brought
out during the evaluation portion of the bidding process. (Copy of rebuttal from
Susan Gallinger, Director, Department of Insurance - Attachment 5.)
Norma Greer, Researcher, Benefits Committee, Arizona Conference of the American
Association of University Professors, Tucson, said that when she enrolled in the
State's health care plan she believed that Interflex was an indemnity plan.
She cited an experience of being refused a prescription for Seldane by her
physician and being told to go to Mexico to get medication. She stated that
she would like to have quality standards included in future health care contracts
and would also like to have contracts set up so as not to favor one insurance
company over another.
Dr. Carol Bernstein, President, American Association of University Professors,
Tucson, said that she thinks it is a very good idea to have elected people on
committees that are reviewing health care plans and suggested that people who
teach how to evaluate insurance policies could be utilized.
Anne Schutte, Faculty Associate, Arizona State University, Tempe, representing
herself, shared her personal health problems. She said that she takes eleven
different medications daily at a cost of $350 per month. She stated that in 1992
she enrolled in Interflex but because of the high premiums and noncovered claims,
she found this to be a costly program. She reported that she spent $4,000 last
year in out-of-pocket expenses. She suggested that she is the type of person
the State didn't consider last year when the new insurance program was selected.
(Copy of full text of remarks - Attachment 6.)
Dr. Harvey A. Smith, Professor, Arizona State University, Tempe, representing
hi mse1f, submitted documentat i on of cost effi ciency and cost analys is of the
Intergroup and Interflex health plans (Attachment 7).
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
11 10/28/93
Dr. Mel. Firestone, Associate Professor, Arizona State University, Tempe,
representing himself, voiced his concern that the cost of the employees'
insurance premium has drastically gone up, but employees have not gotten a salary
increase.
Robert E. McConnell, Tucson, representing himself, stated that as a long-time
State employee and a recent retiree, he has been ambushed and astonished by an
unbelievable increase in the cost of health insurance, which has been coupled
with a frustrating decline in the quality and quantity of health care for his
wife and himself. He noted that his health care premium has increased 212
percent, totaling $270 per month, in a little over a year. (Copy of full text
of remarks - Attachment 8.)
(Tape 2, Side B)
Jane Baez, Motor Vehicle Customer Service, Flagstaff, representing herself,
stated that she has been i nvo1ved in government work for almost 20 years,
choosing to stay in a low-paying job because of the benefits and security it
offers. She noted that she takes home $1,000 per month, which is the only
support her family has. She said that she needs an HMO badly, which Flagstaff
does not have. Ms. Baez described the medical bills that have resulted from her
husband being struck by a snow plow and her son being hit by a bicycle and said
that these bills have accumulated to the point of her being sued for nonpayment.
She related that not one woman in the office where she works has had a pap smear
or mammogram since the current insurance coverage went into effect because they
can't afford it. Ms. Baez also stated that she has missed four times as much
work this year as she has ever missed because she cannot afford to go to the
doctor and she is not given time off to come to Phoenix to see an HMO doctor.
She commented that she had written a letter to Mary Ann Knight, but had never
received an answer. She then wrote a letter to Ms. Knight's supervisor, but
never got an answer to that letter either.
Ruth Stokes, Tucson, representing herself, stressed the need for the State to
offer a true indemnity plan to its employees and suggested that drugs should be
permitted to be bought in larger quantities for cost savings. (Copy of full text
of remarks - Attachment 9.)
Vernette Fitzpatrick, Tucson, representing herself, described her circumstances
of being a widow with three sons, her mother being in a nursing home, and having
an incurable disease herself. She said that her take-home pay is $1,100 per
month. She explained that she works for this low salary in exchange for the
benefits provided by the State. She expressed the need to have an indemnity plan
because of her particular medical problems.
Art Weese, Flagstaff, representing himself, testified that State employees in
Northern Arizona are concerned about the lack of an HMO plan in their area. He
noted that the shortest distance to see an HMO doctor is 200 miles round trip.
He also noted that employees in the Flagstaff area were told their premiums were
high because they lived in a high-stress area of the State. Mr. Weese reported
that some people are working while sick because they can't afford to go to the
doctor.
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
12 10/28/93
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Dr. Robert J. Letson, University of Arizona Retirees Association Legislative
COl1l1littee, Tucson, expressed concerns about ava i labil ity of benefi ts to ret i rees.
He said that his insurance premium has increased from $69 to $170 per month and
suggested that a capitation program will save retirees money.
Louise Muir, representing herself, stated that she is a twenty-six-year State
employee who has Lupus. She said that because of the treatment program she has
worked out with her phys ician, she is rarely sick or absent from work. She
expressed concern about jeopardizing that program by transferring to an HMO
doctor and stressed the need for an indemnity plan. She said that when she
called DOA about her problems with Interflex, she was referred to Ms. Stewart,
who is actually an employee of Intergroup, and said that she feels this is a
conflict of interest.
Tedde Scharf, Associate Director, Disabled Resources, Arizona State University,
Tempe, said that she has worked in higher education for twenty years. She
submitted that the drastic changes in insurance coverage for State employees has
affected the quality of care and trust level of those employees.
Jim Hemauer, Senior Program Coordinator, Arizona State University, Tempe, said
that he is very happy to 1earn of the enhancements that were done to the
insurance plans this last year but said that he doesn't think this should mislead
anyone into thinking that they are as good as what has been presented. He noted
that many items are no longer covered that were covered by the previous insurance
-provider. He also stressed the need for an indemnity plan and said that he would
like to have the option of staying with the physician he has had for the past
23 years.
Sherry Santee, Physical Therapist, Tucson, representing herself, reported that
Interflex was misrepresented as an indemnity plan to her when she enrolled in
the State's insurance program. She said that she would like to hear an admission
from Intergroup that Interfl ex was mi srepresented, and that they be held
accountable for this misrepresentation.' She added that she supports including
an indemnity plan in the benefits package.
Carol Long, representing herself, described her problems with Intergroup. She
said that in 1990, she was diagnosed with bilateral hip dysplasia. Due to this
condition, her legs are not properly positioned in the hip socket. She said that
with this problem, she has considerable excruciating pain when walking or at
rest, and her activity has become severely restricted. She was treated with a
variety of non-steroidal anti-inflammatory drugs and referred to a local
orthopedi c surgeon by her primary care phys i ci an. The orthopedi c surgeon's
recommendation to her was to "tough it out, II doing hip exercises at home and
treating the pain with drugs, until she is 65, when she can get a total hip
replacement. Ms. Long said that in May 1993, at her own expense, she sought an
independent analysis of her condition outside of the Intergroup network. Dr.
Hattrup of the Mayo Clinic Scottsdale recommended a surgical procedure to
reconstruct the hip rather than replacing it. Dr. Hattrup stated that he and
his colleagues were unaware of anyone in Arizona remotely qualified to do this
procedure but that the benefit of this procedure would be pain relief and normal
mobility. This information was transmitted to her primary care physician in the
form of a consultative 1etter. His response was to again refer her to the
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
13 10/28/93
orthopedic surgeon, who in turn referred her to another doctor identified as a
"local expert" in the field of hip reconstruction; however, the referral to the
"expert" was denied by the Medical Review Committee of Intergroup.
Ms. Long submitted that Intergroup's "bottom line" seems to be adversely
i nfl uenc i ng the care of the pat i ent. She noted that she has few opt ions
available to her at this point: 1) become crippled until she reaches a suitable
age when surgeons will perform a total hip replacement, or 2) personally bear
the extreme financial burden for the reconstructive procedure that will correct
her medical problem. Ms. Long opined that this is not how the system is supposed
to work, but is how the Intergroup system works. (Copy of full text of remarks ­Attachment
10.)
Mary E. Green, Professor Emerita, Arizona State University, Tempe, representing
herself, said that she would not have taken early retirement if she had known
what was in store for her in the way of insurance coverage. She pointed out that
her insurance premium rose 26 percent with the new coverage and was told that
Interf1ex is an indemnity program. Ms. Green alleged that a letter dated October
25, 1993 and signed by Rick Barrett, President and CEO of Intergroup, sent to
all Interf1ex members is replete with inaccuracies and the convenient use of the
passive voice to avoid responsibility. She opined that Interf1ex most certainly
does not ensure "access to the highest quality healthcare available in the State
of Arizona," but quite the contrary. (Copy of handout - Attachment 11.)
Dr. David W. Smith, Chair, Legislative Committee, University of Arizona, Tucson,
maintained that in the U.S., the health care industry is HMO driven because the
majority of people are not chronically ill and the costs for their care are
less. He said that his experience has been that the chronically ill person seeks
an indemnity plan.
(Tape 3, Side A)
Dr. Smith contended that the chron i ca11 y ill people and those who are not
chronically ill cannot be serviced by the same type of medical plan. He stressed
the need to have an indemnity option in the State health plan and some kind of
advocacy group to ensure that the patient gets appropriate health care.
Roger Carter, representing himself, stated that he spent $3,741 out of pocket
in 1991 and $5,994 in 1992 on medical care for his ill wife. He questioned why
other states can have a good Blue Cross/Blue Shield plan for their employees and
Arizona can't.
Carole Dow, representing herself, said that she thinks it should be clear to
everyone that employees should be offered a choice of what type of insurance they
want to have, whether it be an HMO, indemnity, or whatever.
Eli Kaminsky, Professor Emeritus of Political Science, Arizona State University,
Tempe, representing himself, testified that the right to choose a physician is
a sacred right that should be preserved.
Christy Bison, Tempe, representing herself, said that her major complaint with
Intergroup is that nurses are maki ng di agnoses rather than schedu1 i ng an
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
14 10/28/93
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(Attachments and tapes on file in the Office of the Chief Clerk.)
Marianne Alcorn submitted a copy of her remarks but did not testify before the
Committee (Attachment 12).
Mrs. Burns announced that the next Committee Meeting will be held on November
18, 1993 early in the morning.
The meeting adjourned at 2:42 p.m.
LEGISLATIVE OVERSIGHT HEALTH INSURANCE
BENEFITS REVIEW COMMITTEE
15 10/28/93
cr
11/4/93
appointment with a doctor. She said that in a recent call, her doctor made a
diagnosis and prescribed medicine over the phone without having examined her.
She said, too, that her doctor advised her that she doesn't need a mammogram
until she is 50 years of age, even though she was experiencing breast problems
at the time.
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ATTACHMENT C
Notice/Minutes of 11/30/93 Meeting
LEGISLATIVE OVERSIGHT HEALTH INSURANCE BENEFITS REVIEW COMMITTEE
ARIZONA STATE LEGISLATURE
INTERIM MEETING NOTICE
Open to the Public
Representative Eden
Representative Edens
Representative Conner
Representative Ortega
Representative Brenda Burns
Cochair
House Hearing Room 3
AGENDA
Review of State Employee Health Insurance Benefits
: Hsyse HeaFiAg Ree~ 2
Senator Carol Springer
Acting Cochair
MEMBERS:
Senator Brewer, Cochair
Senator Hardt
Senator Hermon
Senator Soltero
Connie Butchee, Supreme Court appointee
Professor Frank Williams, Board of Regents appointee
10/17/93
rd
PLACE:
SUBJECT:
DATE: Tuesday, November 30, 1993
TIME: 1:00 p.m.
1. Opening Remarks
2. Committee recommendations based on October 28 meeting
3. Comparison of Health Insurance Benefits Available to State Employees in
Rural and Urban Counties
a. Overview by the Department of Administration (DOA)
b. Public testimony
4. State Retiree Health Insurance Coverage
a. Staff overview of legislative enactments concerning the retiree health
insurance program
b. DOA overview of policies regarding retired state employee health
insurance coverage
c. Presentation by the Arizona State Retirement System (ASRS) on the
retiree health insurance program administered by ASRS
d. Public testimony
5. AHCCCS and State Employee Health Insurance
a. Presentation by Representative Schweikert
b. Public testimony
6. Committee recommendations
7. Adjourn
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(Tape 1, Side A)
LEGISLATIVE OVERSIGHT HEALTH INSURANCE BENEFITS REVIEW COMMITTEE
The meeting was called to order at 1:10 p.m. by Cochairman B. Burns and
attendance was noted.
Senator Hermon
Senator Soltero
Prof. Frank Williams
Senator Springer, Cochairman
Mrs. B. Burns, Cochairman
Members Absent
Members Present
ARIZONA STATE LEGISLATURE
Forty-first Legislature - First Regular Session
Interim Committee Meeting
Minutes of Meeting
Tuesday, November 30, 1993
House Hearing Room 3 - 1:00 p.m.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
NOVEMBER 30, 1993
Connie Butchee
Mr. Conner
Ms. Eden
Mr. Edens
Senator Hardt
Speakers Present
Sue Dunaway, Senate Research Analyst
Bill Bell, Assistant Director, Personnel Department, Arizona Department of
Administration (ADOA)
MaryAnn Knight, Benefits Manager, Arizona Department of Administration (ADOA)
Lisa Hardy, House Research Analyst .
Tom Finnerty, Legislative Liaison, Arizona State Retirement System (ASRS)
Donna Buelow, Manager, Retiree Health Insurance Unit, Arizona State Retirement
System (ASRS)
David Mendoza, Legislative Director, AFSCME Council 97
Norma Greer, representing herself, Tucson
Anne Schutte, representing herself, Tempe
Richard Murra, representing himself, Chandler
Harvey A. Smith, representing himself, Tempe
Jim Witner, President, University of Arizona Retirees Association
Dr. Robert Letson, representing himself, Tucson
Dr. David Smith, representing himself, Tucson
John Brand, representing Arizona State Retired Employees Association
Bill Cook, represpnting himself, Glendale
Senator Brewer (excused)
Mr. Ortega
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DISCUSSION OF RECOMMENDATIONS
Sue Dunaway. Senate Research Analyst, related the Committee recommendat ions
based on the October 28 meeting (Attachment 1) for discussion by the Members.
Recommendation #1
Ms. Dunaway noted that Eliott Hibbs, Director, Arizona Department of
Administration (ADOA), stated at the last meeting that they are presently in the
process of compiling a Request for Proposal (RFP) for an indemnity plan.
Cochairman Springer suggested that the Committee recommend that the state offer
an indemnity program that is not subsidized; the state portion should only be
the same as with other coverages. She addeQ that if the state employee chooses
the indemnity program he/she should pay the difference.
Mr. Edens stated that he received the RFP for an indemnity plan today. He said
he has not had a chance to look at it but opined that it would be better to
review the rate of subsidization after making sure the RFP is proper.
Senator Hermon spoke against state employees subsidizing the indemnity program
for other employees.
Chairman B. Burns clarified that the Committee recommends that there be an
indemnity option for employees which is not cost prohibitive and takes into
account the cautions pointed out by Cochairman Springer, Senator Hermon and Mr.
Edens.
Recommendation #2
Ms. Eden suggested that DOA, in preparat i on for the bi d, shoul d ask for
representation from AFSCME, the universities, and a variety of people.
Bi 11 Bell. Ass i stant Di rector, Personnel Department, Ari zona Department of
Administration (ADOA1, explained that ADOA has prepared the RFP for an indemnity
plan as mentioned in the last meeting. He said they will have a pre-bid
conference meeting which will be open to the public in which they can talk to
the carriers; they will also invite comment from interested parties. He said
this will be done before the RFP is finalized before going to bid. They plan
to have this meeting sometime next week; the State Procurement Office will be
notifying the public shortly. He added that their intent, because there is great
interest in an indemnity plan, is to obtain as much input as possible from those
who are interested. Since they have a very short time frame, they believe this
might be the best route to go.
He cl ari fi ed for Ms. Eden that ADOA has exi st i n9 contracts for HMO carri ers
throughout the state; they are in the second year of those five-year contracts
so they will not be bid at this time.
Cochairman B. Burns suggested that a change be made in Item #2c: Delete the word
"Require" and insert "Recommend."
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
2 NOVEMBER 30, 1993
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The Members agreed to adopt Recommendation #2 incorporating the above
suggestions.
Recommendation #3
Ms. Dunaway said it is up to the Committee whether or not to add a specific time
frame for Item #3a. She pointed out that Interflex was out of compliance for
nearly the entire plan year although they were only penalized during the last
six months.
Regarding Item #3c, she noted that DOA and Mr. Edens were to meet on this issue
but due to miscommunication they were not able to meet before the meeting, so
they will meet after the meeting to develop a form for reporting the contract
performance of the carriers to the Committee.
Senator Hermon indicated that the language in this recommendation is not strong
enough. She suggested that in Items #3a and #3c, the word "should" be changed
to "will"·or·"shall."
Cochairman B. Burns pointed out that Recommendations #2 and #3 contain specific
bullet points regarding the quality of care which have been lacking in RFP's and
contract awards. She noted that she is glad to see that.
Mr. Edens suggested that this Committee meet on at least a quarterly basis so
that ADOA can present the required information, allowing the Committee to provide
administrative oversight.
Chairman B. Burns replied that statute requires that the Committee meet annually,
and the Committee can meet quarterly if the Members wish to. She said another
alternative is that after receiving the reports, it can be determined if there
is a need to meet on a quarterly basis rather than annually.
The Members agreed that Item #3c should require that the reports from ADOA be
submitted to the Committee on a quarterly basis.
Cochairman B. Burns suggested in Item #3a "in a timely manner" should be changed
to "in keeping with the time provided in the contract."
Mr. Conner stated that in Item #3c, if the Committee is going to be an ongoing
oversight committee, a recommendation should be made that Wyatt and Company has
to review any problems and the Committee would make a recommendation from their
findings.
The Members agreed with the suggested changes in Recommendation #3.
RECOMMENDATION #4
Cochairman B. Burns asked if Item #4a refers specifically to ADOA or the
providers.
Ms. Dunaway said the brunt of this request stems from the people who testified
at the last meeting; they indicated that when they spoke to different carriers
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
3 NOVEMBER 30, 1993
they received different stories. This requires that ADOA will be the primary
disseminator of information.
The Members agreed to adopt Recommendation #4.
RECOMMENDATION #5
Senator Hermon said she is one of the people who brought up Item #5b, and
although it is minutia, it is a major annoyance to have to get an annual
prescription filled every month.
Cochairman B. Burns expressed a concern that Item #5a may be detrimental to
families. None of the other Members shared her concern.
The Members agreed to adopt Recommendation #5.
PRESENTATIONS
Cochairman B. Burns noted that DOA's testimony will focus on comparison of health
insurance benefits available to state employees in rural and urban counties and
state retiree health insurance coverage.
Bill Bell. Assistant Director. Personnel Department. Arizona Department of
Administration (ADOA), noted that there is a national health care crisis
resulting in a 37 percent increase in costs nationally over the last three years.
He said he is proud that the premium costs to state employees have risen only
7 percent during that same period of time.
.
He recognized that there are some state employees who are still unhappy with the
plans available to them but emphasized that only some of the employees are still
unhappy. He opi'ned that most employees are satisfied with the health care
coverage administered by the state; however, they will be conducting a survey
of state employees again in early 1994.
(Tape 1, Side B)
He noted that the State offers quality health care plans i~ all areas
(Attachments 2 and 3). He stated that coverages under Health Maintenance
Organizations (HMOs) vary by carrier but there are some commonalities, whether
provided in the rural or urban areas, such as prescriptions for $3 to $5, no
hospitalization charges, preventative coverage, durable medical goods coverage,
minimum co-pay for doctor's office visits from zero to $10, unlimited coverage
for most conditions and catastrophic coverage.
Mr. Bell explained that all state employees have access to HMO's except in the
Fl agstaff area but added that they have just arranged for Coconi no County
employees to have access to any HMO in the state for routine, plannable
situations while maintaining their indemnity. He said this is not an ideal
option but it meets some of the employees' needs for now. Announcement of this
option will be mailed to eligible employees next week with meetings scheduled
for December 13 in Flagstaff. The effective start date will be January 1, 1994.
He expressed hope that this move will encourage local providers to offer the HMO
option to employees in the Flagstaff area in the near future.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
4 NOVEMBER 30, 1993
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He said, historically, Blue Cross/Blue Shield had bid and was awarded an
indemnity program; however, ADOA wanted to offer employees in the rural areas
a choice of health care plans. Therefore, ADOA and Blue Cross/Blue Shield formed
a partnership of commitment with Blue Cross/Blue Shield dedicated to expanding
their HMO network. As a result of this partnership, they have been able to
enrich the benefits for Blue Cross/Blue Shield participants without increasing
costs. He said to date ADOA has increased the number of HMO provider hospitals
(Attachment 4) and they have more than doubled the number of physicians who are
HMO providers in the rural areas (Attachment 5). This expansion has allowed many
state employees to have continuity of care when their physicians under previous
coverages became Blue Cross/Blue Shield HMO providers.
He related the changes made so that the rural HMO is more comparable (Attachments
6 and 7). In addition, the deductible period was extended to 21 months, from
January 1, 1992 to October 1, 1993 when deductib1es were converted from calendar
year to a plan year.
Senator Hardt requested a copy of Mr. Bell' s test imony. Mr. Bell agreed to
provide him with a copy.
Mr. Bell related to the Committee that for retirees ADOA provides pol icies often
based on statute covering choice of plans, level of benefits, premium costs, and
separation of groups. He said A.R.S. 38-651.01 and personnel rules currently
allow a retiree to remain in his/her current ADOA-administered plan or opt into
the Arizona State Retirement System's (ASRS) administered plan. Retirees who
choose to move into the ASRS plan may not rejoin the ADOA-administered program.
If it were possible to opt back and forth, the plan would have a fluctuating pool
of participants, and therefore, would be difficult to bid and very difficult to
administer.
He said that retirees receive the same level of benefits as active employees.
Retirees pay the total premium cost for their health care insurance, unlike
active employees who pay a portion of the total. However, retirees receive a
subsidy from the ASRS. In addition, those retirees who are Medicare-eligible
have significantly lower premiums due to Medicare coordination of benefits.
He mentioned that in the process of bidding the new health care program, ADOA
became aware of A.R.S. 36-651.01 which prohibited combining active and retiree
groups. Based on advice from the Attorney General's Office, information from
their carriers and recommendations from consultants, they decided to bid the
retirees plan as a separate demographic group. He acknowledged that many
retirees experienced premium increases as a result of unb1ending; however, there
were a number who experienced decreased premiums (Attachments 8 and 9). He said
they have been and wi 11 cont i nue to work wi th the carri ers to fi nd ways to
enhance coverages under these plans for retirees. He expressed the Department's
continued support of increased subsidies for retiree premiums.
Mr. Be11 presented a program enhancement announced by ADOA last week called the
Senior Care Program. It reduces health insurance premiums for retirees who are
Medicare-eligible by allowing them to assign their Medicare benefits to the CIGNA
staff or Intergroup HMO's. Retirees may reduce their premiums by as much as
$1,000 to $4,200 per year at no increased cost to the state. He said meetings
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
5 NOVEMBER 30, 1993
to introduce this enhancement will be held in December, 1993 and January, 1994
with coverage effective February 1, 1994. He added that Blue Cross/Blue Shield
is developing a similar plan which he anticipates will be available in the spring
of 1994.
In addition, Mr. Bell said ADOA has developed new communication tools for both
active and retired employees. He said newsletters will provide tips on we11ness
and utilizing health care plans; they hope this will increase the retirees'
understanding and ability to maximize their benefits. They have established a
Benefits Advisory Task Force that will include retirees as members. The Task
Force will be meeting later this week to provide input to ADOA.
He noted that there has been some discussion relating to reb1ending the retirees
and active employee group. He said ADOA is committed to fully supporting and
worki ng wi th the Commi ttee to reach an equ itab1e sol ut ion to th is and other
health insurance concerns. He pointed out issues that should be considered
before such a recommendation is made:
1. Premium rates for active employees would increase; this increased
cost would have to be borne by either the employee or the state.
2. Premium rates for those retirees who are currently paying less than
active employees would increase.
3. Consideration might be given to allowing retirees who opted out of
the ADOA-administered plan to return to the ADOA plan. If this
should occur, it would be difficult to bid and administer plans with
fluctuating participant pools. This may cause significant increases
in- administrative costs.
Mr. Bell clarified for Mr. Edens that RFP's are drafted in his office, then they
are submit ted to the Procurement Offi ce where they are refi ned. He sa id
enforcement of the provisions of the RFP fall jointly to the Personnel Division
and the State Procurement Office within ADOA.
Mr. Edens emphatically stated that the reason this Committee is meeting is
because one carrier is not complying with their RFP and something needs to be
done about it. Mr. Bell replied that he agrees that this needs to be addressed.
He related to Mr. Edens that they have assessed penalties to Intergroup and will
be meeting with them to make sure they are in compliance with the RFP and that
they will stay in comp1 iance. He noted that the other carriers are in
compliance.
Cochairman Springer asked if reblending of the retirees with active state
employees would require a statutory change. Mr. Bell answered that he has been
advi sed by the Attorney General' s Offi ce that a statutory change woul d be
necessary.
Cochairman Springer asked the reason why all state employees and/or retirees do
not have the same health programs available.
Mr. Bell stated that he was not on the Committee but he believes the RFP's were
put out asking for a variety of combinations; one was for a bid on a statewide
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
6 NOVEMBER 30, 1993
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program. Some of the carriers did bid a statewide program Qut the Committee
believed the cost was prohibitive.
Cochairman Springer asked if ADOA has considered breaking the state up into
quarters or some other kind of situation in an effort to try to make available
to the rural areas those plans which are available in the urban areas. Mr. Bell
replied that they are considering a variety of options including her suggestion;
they understand that this is a major problem for many of the retirees and they
hope to resolve it.
Cochairman Springer asked if a rural employee or retiree opts to pick up a plan
from an urban area, i.e., could they choose to be a member of one of the plans
available in the Metropolitan area if they want to drive to Phoenix or wherever
to take advantage of that. Mr. Bell rep1i~d that this can be done as long as
that plan is offered in the area. He referred to the opt i on wh i ch wi 11 be
available in Flagstaff.
Cochairman Springer asked if ADOA would object to changing the statute to allow
retirees who opted out of the system an opportunity to come back in. Mr. Bell
replied that he is not sure they would object, however, there are some
conditions which would need to be considered. He clarified that those over 65
are paying lower premiums now so he doesn't know if they should be given this
option.
Cocha i rman Spri nger noted that the separat i on of ret i rees from the act i ve
emp1oyees was sprung on the ret i rees wi thout, not ice, and under the
ci rcumstances, they shoul d be offered the opportun ity to opt back into the
system without a big hassle. Mr. Bell agreed with her statement. He said they
have approximately 3,000 retirees in the ADOA-administered program but he
doesn't know how many retirees opted out.
Cochairman B. Burns asked if the rate to active employees decreased as a result
of the unb1ending. Mr. Bell said it did. He elaborated that if reblending
occurs, there will be an additional cost; that cost will be picked up either by
the employee or it can be picked up by the state.
Cochai rman B. Burns di sagreed with Mr. Bell's statement that the state has
continued to offer quality health care at an affordable cost. Regarding his
comment that the increase to the state employee premium has increased only 7
percent over the last three years, she opined that the same level of care has
not been maintained mostly due to the spiraling cost of health care.
MaryAnn Knight. Benefits Manager. Arizona Department of Administration (ADOAl,
explained that ADOA is currently offering the ability to choose an HMO outside
of Flagstaff to be effective January 1, 1994. The participant will maintain
the indemnity coverage in F1 agstaff but wi 11 have the opt i on to travel to
Maricopa County or anywhere else and utilize HMO benefits. She agr~ed that this
is not an ideals ituat ion but they are hop i ng that the economi c impact will
motivate providers to opt into the HMO system.
Cochairman Springer assumed the Chair.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
7 NOVEMBER 30, 1993
Ms. Eden expressed reservation about a viable indemnity program. Mr. Bell said
state employees want an indemnity program and thay are trying to do that. He
said they do not expect a groundswell of carriers to bid on the plan but he
believes they will have sufficient bids to make a reasonable decision.
Ms. Butchee noted that she conducted a survey of several states, their indemnity
plans, HMO's and how costs are passed on to the employee. She related the
information to the Committee pointing out that the State of Massachusetts offers
14 HMO's and a State Hancock indemnity plan while Washington, D.C. offers four
HMO's and a Blue Cross/Blue Shield indemnity plan (Attachment 10). She asked
if the HMO's and PPO's were included in the bid for an indemnity plan, would the
cost be lower for state employees.
Mr. Bell replied that it probably would be more advantageous to bid as a package
but reiterated his earlier remarks that they currently have existing five-year
contracts with the present carriers, and he believes the rates have been very
favorable. With respect to the RFP for an indemnity plan, they are responding
to what they ·have heard from employees and this Committee.
Cochairman Springer asked if the current five-year contracts have an annual
renewal clause. Mr. Bell repl ied that they do, and they can el iminate the
carriers on any given year .
. Cochairman Springer asked if when ADOA initially requested bids for these
programs, they specified coverage and price. Mr. Bell replied that they did
specify coverage and price but they also requested that they be flexible and
submit other programs.
Cochairman B. Burns resumed the Chair.
Lisa Hardy. House Research Analyst, referred to a handout (Attachment 11) which
shows how the retiree health insurance benefit program works, the four state
retirement systems and types of employees included under each program. She
presented a historical recap of the program.
She clarified for Cochairman Springer that a policy change was made within ADOA
to separate the retirees from the active employees during the 1992 enrollment
period based on an informal opinion from the Attorney General's Office and the
statutory language cited by Mr. Bell previously. The practiced policy prior to
this enrollment period was to blend the retirees with the active employees.
(Tape 2, Side A)
Cochairman Springer said it is her understanding that there were no bidders for
the rural areas for retirees so ADOA had to solicit a carrier for that coverage.
Mr. Bell answered that Blue Cross/Blue Shield bid for this coverage; ADOA did
not have to solicit bids for the retirees. He recalled that CIGNA, Blue
Cross/Blue Shield and Intergoup bid on this coverage.
Tom Finnerty. Legislative Liaison. Arizona State Retirement System (ASRSL
thanked Ms. Hardy for presenting the history of the program. He stressed the
fact that one of the reasons ASRS took over the administration of the health
insurance program is that they have over 200 employers, each with the irown
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
a NOVEMBER 30, 1993
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health insurance program with varying degrees of when coverage is terminated;
part of the intent is that ASRS not steal anybody from the coverage they are
already receiving. Basically, the law states that ASRS can only provide
coverage when emp10yee~ are no longer eligible to receive coverage from their
plan employer, i.e., those who are uninsurable go to ASRS and they have to
provide that insurance. He said this leaves ASRS in a vulnerable position
because it is very hard to attract insurers who provide competent bids. He said
FHP has been the only one that has come through each time.
Donna Buelow. Manager. Retiree Health Insurance Unit. Arizona State Retirement
System (ASRS), noted that the retiree group insurance program through the ADOA
Procurement Office issued a RFP for health insurance coverage in 1990 to be
effect i ve January 1, 1991. Proposa1s were rece i ved and rev i ewed by the
Procurement Committee which consisted of ASRS staff and others in the benefit
community. National Dental Health was chosin for a prepaid dental plan and FHP
for an indemnity dental plan. The proposal from FHP was accepted for HMO and
indemnity medical coverage. The terms of the contract were for one year with
four renewable options, each for a one-year period. She said included in the
contracts was a pricing schedule which indicates maximum increases allowable for
each renewal period.
She said procurement procedures necessitate that staff indicate annually whether
a renewal will be accepted or if the contract should be placed out to
competitive bidding. ASRS staff has historically presented the renewable
proposa1s to the ASRS Governi ng Board and thei r appoi nted subcommi ttees for
their approvals or rejections. The renewal proposals presented by the carriers
for 1992, 1993 and 1994 have been accepted by the Board and approved by the ADOA
Procurement Office. .
She went over their current plans:
1. A prepaid dental plan which offers preventive services and no out­of-
pocket costs for the member through participating offices.
Benefits are also available through an alternate reimbursement
program if a provider is not available within a geographic distance
from the member's residence. Premiums range from $6.12 per month
for a single member within Arizona to $15.58 for a family residing
in one of the other states in which this plan is offered. Current
enrollment figures indicate that approximately 8,700 retirees and
3,300 dependents are enrolled in this plan; the majority (97
percent) reside in Arizona.
2. Indemnity dental plan offered by FHP. The benefits are based on the
type of service provided. By accessing a preferred provider network
of dentists, benefits are paid at higher percentages. This plan
includes annual deductib1es and maximum benefit amounts. There are
currently approximately 3000 members and their dependents enrolled
in this plan.
3. The FHP HMO medical plan office services, through contracted
providers, in approved zip code areas of Arizona in Maricopa, Pima
and Pinal Counties. Members enrolled in Medicare as well as those
who are not are eligible to enroll in this plan. The plan for those
enrolled in Medicare is the Golden Health Care Plan. Benefits are
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
9 NOVEMBER 30, 1993
4.
similar for both plans and include a S5 copayment for office visits,
S3 copayment for prescription drugs and a S200 per year allowance
for heari ng aids. The premi ums for the HMO plans are based on
MediJ=are eligibility of both the member and his/her dependents.
Current enrollment data indicates that there are approximately 2,600
members who are not eligible for Medicare. Those enrolled in the
Golden Health Care Plan total approximately 4,600.
She noted that expansion has been a priority for this plan.
Beginning in 1994 retirees living in areas of California, Nevada and
New Mexico will be able to access the HMO's available within those
areas. Expans ion wi th in the State of Ari zona is somewhat more
dffficult as it is imperative that any expansion be coupled with a
Med icare ri sk contract. Whil e negot iat ion is not yet complete,
there are some areas within Arizona in which they may see a
completion within the calendar year of 1994.
The indemnity medical program offered by FHP includes coverage for
those not Medicare-enrolled and those enrolled in Medicare in the
form of a Medicare supplement plan. The Medicare supplement plan
includes benefits such as prescription drugs for either a S5 or S10
copayment depending on whether a generic or brand name drug is
received. There is an annual maximum on this benefit of $1,600.
FHP pays the Medicare deductible of S100 per year for medical care.
The plan also pays 20 percent of Medicare allowable charges. There
are currently 11,000 individuals enrolled in the Medicare supplement
plan. Sixty percent of those reside in Metropolitan areas of
Arizona. .
For those not enrolled in Medicare, the indemnity plan has a
deductible of S250 for an individual and S500 for family coverage.
Benefits are paid based on the usage and avai labil ity of PPO
networks that have been established. Realizing that this type of
plan is expensive both in terms of premium and out-of-pocket
expenses, ASRS has worked with the carriers and benefits consultants
to offer some relief.
To this end, two features have been included in this plan. The
availability of the PPO network offers the possibility of
eliminating the deductible and coinsurance for office visits in lieu
of a S10 copayment. When PPO provi ders are accessed for other
services, the insured is reimbursed at a higher rate than a non­network
provider would be. Effective January 1, 1994, each insured
in rural Arizona residing in a PPO-service area can call a toll free
number and obtain assistance in receiving a physician referral. If
a PPO provider is not available within a reasonable geographic
distance, a non-PPO provider will be recommended. By obtaining this
referral, the insured has the claim paid at the higher PPO rate
regardless of whether the physician is a contracted PPO physician.
This is called the Personal Care Network and they currently have
approximately 2,100 individuals insured in this plan; 1,300 of those
live out of state or in the rural areas of Arizona.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
10 NOVEMBER 30, 1993
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She offered two of the many items they are looking forward to in the
upcoming years in this program: 1) Creation of a position to serve
as an ombudsman or retiree advocate for the purpose of medical care
for the enrolled members. Th is would be over and above the
activities carried out by the representatives who presently work at
the system. 2) It has been suggested that a post-RFP process be
undertaken prior to the next bidding to ascertain and determine how
to encourage competition among the carriers for the upcoming years.
Mr. Conner asked about providing insurance for those who take early retirement.
Mr. Finnerty replied that the people who retire prior to age 65 are probably in
the highest risk group in the country. Traditionally, when ASRS goes out for
bid on programs, they receive more than just FHP bidding on the contracts but
they are usually only willing to take those on the Medicare level; they don't
bid for any coverage below 65. He explained to Mr. Conner that under ASRS their
contract insurer is the FHP company, PPO (Preferred Provider Organization) is
a program provided by many insurers within their indemnity coverage. Usually
it is a 90-10 reimbursement (the insurer will pay 90 percent, the individual
pays 10 percent). If a PPO provider is not used, the reimbursement drops down
to 70-30.
Mr. Finnerty explained to Mr. Conner that when retirees become 65 or disabled,
under social security, after two years they become Medicare-eligible. Then the
subsidy drops from $95 per month to $65 per month recognizing the fact that the
primary insurance from age 65 on is Medicare; ASRS only provides the supplement.
Before age 65, the insurance provided by ASRS is primary.
David Mendoza. Legislative Director. AFSCME Council 97, submitted a Fact Sheet
and related legislation (Attachments 12 and 13). He referred to a Report by
the Auditor Gener.al on the Personnel Division of ADOA (Attachment 14) which
identifies many of the concerns of AFSCME and the Committee. He pointed out the
recommendations made by the Auditor General on page 30 of the report noting that
he bel ieves they are a step in the right direction but they do not go far
enough. He opined that ADOA should be required to negotiate health plans which
provide comparable benefits at comparable costs to all state employees
regardless of their residence and A.R.S. 38-561 should be amended tQ provide for
that process. He urged the Committee to do that.
He referred to a Fact Sheet concerning the reblending issue (Attachment 15) and
submitted a position statement, for the record, in support of legislation to
require blending of retirees with active employees (Attachment 16).
PUBLIC TESTIMONY
Norma Greer, representing herself, Tucson, said she spent the last year
researching the hurriedly bid health care contract of 1992 and the resulting
health care options. She submitted that the entire premise for the 1992 bid for
the state employee's health insurance is flawed and the entire contract needs
to be rebid; not only the indemnity program. The unblending of retirees, rural
employees and people choosing indemnity-type insurance has sabotaged the
intended stated goals of saving the state money. It has not only cost the state
more money but has cost the state in angry current and former employees.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
11 NOVEMBER 30, 1993
Cochairman Springer assumed the Chair.
Ms. Greer endorsed the FHP indemnity plan presently in effect with the City of
Tucson (Attachment 17). She stated that what Interf1 ex offers the State of
Arizona is a PPO which is very restrictive and requires that a single person pay
$804 more per year (compared to the City of Tucson) for single coverage with a
$400 deductible and Interflex pays 80-20 of "covered" expenses. She contended
that the contract that Intergroup has written in their Interflex program is
riddled with exceptions, misleading verbiage, and doub1etalk.
She explained that Pima County offers their employees Intergroup HMO; their
Benefi ts Manager related to her that the 1arger the pool, the cheaper the
insurance. They have wonderful rates with Intergroup HMO because they have
3,000 people insured by Intergroup (Attach~ent 18). T~e State of Arizona has
12,000 people who are insured by Intergroup HMO and they are paying $610 more
per year in Maricopa County and $508 more per year in Pima County. She
indicated that this doesn't make sense. Not only does the state have three
times the number of employees but those employees have been unpoo1ed from the
high risk groups and high cost employees.
She proposed that the Committee very carefully review the RFP for an indemnity
program. She suggested that the Committee be required to choose an evaluation
committee and make sure they know what they are doing. She remarked that fines
ought to be imposed on Interflex for the full year they were not in compliance
with the RFP.
She pointed out that the 1992 contract with Intergroup contains proposed renewal
rates which clearly don't match the 35 percent required by the RFP for cost
containment. She said they are making a lot of money and the State is losing
a lot of money. She concluded by commenting that somebody needs to carefully
look into what is going on.
Mr. Edens asked if it would be possible to have staff review the Pima County
policies to determine if they are the same or better. Ms. Hardy agreed to do
that.
Anne Schutte, representing herself, Tempe, testified that the state must pay
more if necessary so individuals needing an indemnity plan can afford an
indemnity plan. There should be performance standards for all plans; insurance
must be affordable and accessible to everyone. She submitted that all contracts
should be rebid at this time. She suggested elimination of the no subsidization
philosophy because it violates the nature and purpose of insurance. Employees
do not have the same medical needs; the disabled, seriously ill and the elderly
suffer physically and already shoulder high medical expenses. They feel further
victimized by high premiums, high copays and insurance loopholes. The insurance
pool should include all state employees thereby making insurance affordable and
truly available to everyone. The cost should be shared by everyone, including
the young and healthy.
She asked under the pressure to contain health care costs, what protection will
consumers have to ensure that their accountable health plan will not refuse to
provide or pay for covered services on the grounds that the treatment is not
medically necessary. Employees should be represented on all boards, panels,
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
12 NOVEMBER 30, 1993
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committees or other bodies concerned with health care options. These
representatives should be chosen from groups whose members are elected by the
emplo~ees and are not appointed.
She stated that the HMO's need supervision; the disabled, seriously ill, and
elderly are faced with many problems when they are confronted only with HMO
options. She questioned the sense of offering new contracts to companies with
a poor performance history. She expressed a need to properly inform employees
as to the detail regarding plans so they can make informed decisions. Employees
should have the option to opt out of their insurance plan into another if the
services provided by the plan are not satisfactory following grievance
procedures.
Cochairman B. Burns resumed the Chair.
Richard Murra, representing himself, Chandler, addressed the Committee and read
from a prepared statement (Attachment 19).
Harvey A. Smith, representing himself, Tempe, indicated the Attorney General's
opinion concerning unblending of the retirees from the active employees was
solicited in August, 1992 after the contracts were concluded. He opined that
to state that the opinion was the basis for the unblending is somewhat
misleading. He advised the Committee that bidding for an indemnity program
. alone is not viable. He said he talked to several large insurance companies
such as Aetna and their representatives said they do not believe their actuaries
will allow them to bid on such a program. He expressed his preference of a
$2,000 or $3,000 deductible with the state paying most of the cost of the
premium, allowing the employees to go to their own physician.
Jim Witner, President, University of Arizona (UA) Retirees Association, Tucson,
noted that he represents 775 members. He related the following points:
1. The Association supports the goal of affordable health care
insurance for all active and retired state employees.
2. Retirees should continue to be eligible to retain their membership
in the ADOA's sponsored health programs upon their retirement.
3. Retirees should be retained in the same health insurance pool as
active employees particularly in the case of retirees not yet
Medicare-eligible. The current subsidy which is taken from ASRS
funds at no cost to the state and accounted to retirees with ten or
more years of service should be increased $25 per month in each
category in 1994-1995 to assist retirees and their dependents in
their efforts to meet the increased cost of health insurance within
approved programs. Retirees with five to nine years of service
should receive a reduced percentage of this increase according to
the previously established formula.
4. The State of Arizona should provide a pure indemnity health
insurance option for the active and retired employees who prefer
such a plan; they should be made aware that it may be costly.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
13 NOVEMBER 30, 1993
•
5. The State of Arizona must provide appropriate oversight to insure
that timely and competent health care is provi ded to act ive and
retired employees in either an HMO or an indemnity plan.
Dr. Robert Letson, representing himself, Tucson, stated that it has been six
years since the Legislature adopted the provision to establish retiree benefits
under ASRS with the aim of allowing people to continue their coverage with their
employers. That has not been a problem with the State but this is not the case
with many of the school districts.
(Tape 2, Side B)
He said ADOA was notified of this concern before the bill was passed. After the
bill was passed, at the last minute, they took bids but the bids were written
in such a way that only one company could make a bid. Those who were unable to
stay under those provisions only had one choice which was FHP, and while they
have a pretty good program, the continuity of their care was broken. In 1992
when the unblending occurred, Dr. Letson said his premium increased $60 per
month which comes to a total of $720 annually. He said he called ADOA about
this but they have never gotten back to him on that. He submitted that neither
the Attorney General's opinion nor statutory legislation required the unblending
of retirees from active employees. He opined that someone needs to watch what
goes on in ADOA.
Dr. David Smith, representing himself, Tucson, testified that he is beginning
to wonder if he made a mistake by joining an HMO because what is being implied
is that you get better health care in an indemnity program rather than an HMO.
He requested that the Commi ttee search for some data showi ng the di fference
between an HMO in terms of quality of care and the .indemnity system in this
country. He indi~ated that the majority of state employees, active and retired,
are in HMO's; if they are not a high-quality provider, the Committee must do
something to alleviate the fears that arise in the minds of those people that
they are not receiving first-class medical attention.
He addressed the statement that the larger the pool of participants, the better
the rates will be. He suggested that the entire group of people b~ formed into
one pool and bid to multiple carriers. He claimed that people who gravitate to
indemnity plans are by and large chronically ill and applauded the State of
Arizona for employing chronically ill people. He said they do deserve a better
break with respect to health care, but if the HMO is a quality deliverer of
care, their needs are better served in a huge pool in an HMO with this Committee
and other committees giving oversight. If, on the other hand, the HMO is not
a first-class health care delivery system, it is the Committee's responsibility
to provide an alternate plan.
John Brand, representing Arizona State Retired Employees Association, expressed
his support of Dr. Smith's testimony. He added that the main reason people in
his organization are opting for HMO's is because they cannot afford indemnity
plans. He requested a break in premiums for retirees.
Bill Cook, representing himself, Glendale, stated that he was in the FHP HMO
program and he "fired" them but he still has the dental plan. He said he
continues to maintain the indemnity plan that he had which was a MediGap policy.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
14 NOVEMBER 30, 1993
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He doesn't have to send in a claim to them; they pay automatically. He
requested that the statutes be amended to provi de an automat ic tri gger that
would increase health insurance coverage whenever it reaches a certain point,
and to provide coverage for early retirees.
Cochairman B. Burns noted that Mr. Schweikert is not available to make a
presentation concerning AHCCCS and state employee health insurance.
Mr. Mendoza stated that his organization would support the concept of AHCCCS for
state employees if the following items take place before implementation:
1. The transition should begin with a well-defined pilot program.
2. The program should be optional and not forced upon employees.
3. There should be no reduction in the benefit level employees
currently receive.
Cochairman B: Burns said this issue will not be addressed since there is no one
here to advocate for that.
DISCUSSION AND RECOMMENDATION OF ISSUES BROUGHT UP AT THIS MEETING
Ms. Hardy summarized the issues brought up during this meeting for discussion
by the Members.
1. Discrepancies between coverage offered to employees in rural versus
urban areas, i.e. should the state be allowed to bid on a regional
county or some other basis for state employee-health insurance or
should it be required to bid on a statewide basis.
Discussion followed among the Members and Mr. Bell.
Cochairman Springer moved, seconded by Mr. Edens, that the Committee recommend
that all bids for state employee health insurance be on a statewide basis. The
motion carried.
2. Reb1end i ng of ret i rees with act i ve employees, keep i ng them ina
separate pool or transferring them to the system operated by ASRS.
Mr. Bell contended that the Attorney General's opinion was not sought after the
bids; they had a representative from the Attorney General's Office on the
committee while going through negotiations. He said after the bids, he was
asked by one of the Senators to produce the opinion so he had the representative
on the committee from the Attorney General's Office place it in writing.
Mr. Edens remarked that the issue of legality of reblending should be clarified.
Senator Hermon moved, seconded by Mr. Conner, that the Committee recommend
reblending of the retirees, that a formal opinion be requested from the Attorney
General's Office, and if it is necessary, a bill be drafted to change the
statutes. The motion carried.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
15 NOVEMBER 30, 1993
3. Consideration of allowing the retirees who dropped out of the state
system and moved to ASRS, to re-enroll in ADOA on a one-time window­type
basis.
Mr. Finnerty stressed the fact that this might have impacts on their program if
there is a mass removal. He suggested that this be narrowed so that only those
with a most recent change be allowed to go back.
Discussion followed on the time frame. The Members agreed that after the
meeting this can be finalized.
Mr. Edens moved, seconded by Cochairman Springer, that the retirees who were
previously under ADOA coverage and who transferred either to ASRS or private
coverage from (date to be determined) be allowed to re-enroll in ADOA health
insurance, and legislation be prepared to accommodate re-enrollment. The motion
carried.
4. AHCC~S proposal
(Tape 3, Side A)
Cochairman Springer moved, seconded by Mr. Conner, that the AHCCCS proposal be
tabled. The motion carried.
Professor Williams brought up the problem of spouses of active employees who are
not eligible for insurance if the employee dies before retirement.
Cochairman B. Burns said this is an item the Committee could make
recommendations on but stated that they should become more informed on the issue
before doing so. She added that the Government Operations Committee would be
the appropriate Committee for this subject. Professor Will iams agreed to
forward information to that Committee.
5. Additional recommendations from the audience, i.e. should all plans
be bid on instead of just an indemnity plan.
Mr. Bell noted that begi nni ng in January ADOA will be in the process of
obtaining new rates for the coming year for the present contracts. He submitted
that eliminating the existing contracts could place a strain on the Department
as well as the health insurance companies. He said he did not interpret the
Committee's recommendation for a statewide bid to start right now.
Discussion followed between Mr. Edens and Mr. Bell concerning Intergroup.
Cochairman B. Burns commented that this Committee can meet at any time at the
request of any Member who has a concern which needs to be addressed. She added
that she and Cochairman Spri nger will send a 1etter to the Attorney General
regarding the reblending issue, and hopefully, will get a bill drafted to change
the statutes. She said a bill regarding the time frame for re-enrollment in
ADOA for ret i reeswi 11 also be drafted. She noted that the Members wi 11 be
receiving a draft list of the Committee recommendations and asked to be apprised
of any concerns the Members might have. She stated that quarterly reports
should be forthcoming.
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
16 NOVEMBER 30, 1993
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(Attachments and tapes are on file in the Office of the Chief Clerk.)
Mr. Edens noted that each Member has been gi ven a copy of the RFP on the
indemnity policy (Attachment 20).
Cochairman B. Burns encouraged the Members to review the RFP and to let the
Chairs know if they notice anything that has not been addressed.
Without objection, the meeting adjourned at 5:13 p.m.
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12/6/93
17
LEGISLATIVE OVERSIGHT HEALTH
INSURANCE BENEFITS REVIEW COMM.
NOVEMBER 30, 1993
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ATTACHMENT D
Excerpts from Auditor General's
Performance Audit of
DOA's Personnel Division
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PERFORMANCE AUDIT
DEPARTMENT OF ADMINISTRATION
Personnel Division
Report to the Arizona Legislature
By the Auditor General
October 1993
93-6
SUMMARY
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eeds To Redesign
Hiring System (see pages 5 through 12)
Currently, Arizona hiring system can deter the best candidates from entering State
service. The hiring lis rovided by Personnel often contain unqualified or unavailable
candidates. Some hiring ervisors stated that it was often difficult to find even one
qualified, available applica on lists submitted to them. In addition, the Division
requires agencies to follow polt 'es that are often counterproductive to effective hiring.
For example, we identified one se where a supervisor was required to offer an
interview to a candidate who did not eak English for a position that involved working
with the public.
In order to meet the needs of its users, Arizona must significantly revise the manner in
which personnel services are provided. Our audit work found that in the most important
service areas -- hiring, classification, compensation, and benefits -- Arizona's current
personnel system does not respond to its user's needs. The Federal Government and
many other state and local governments are examining or discarding personnel systems
that rely on extensive rules and restrictions in favor of systems offering the fleXibility
and responsiveness needed to provide efficient, effective service.
The Office of the Auditor General has conducted a performance audit and Sunset
Review of the Department of Administration, Personnel Division, pursuant to a
December 13, 1991, resolution of the Joint Legislative Oversight Committee. The audit
was conducted as part of the Sunset Review set forth in Arizona Revised Statutes
(A.R.S.) §§41-2951 through 41-2957, and is the first of six audits scheduled on the
Department.
A comprehensive reform effort is needed to ange Arizona's hiring system to allow
agencies increased flexibility and service. Such re rm will require revision of rules and
statutes that restrict agencies' hiring options. In addi n, more immediate changes in the
Division's operating practices are also needed, incl ing the use of supplemental
applications, increased participation of agency supervisors' candidate evaluations, and
recruiting at colleges and job fairs.
DOA Needs To Address Fundamental
Problems With The State's Classification System
(see pages t3 through 17)
Arizona's classification system is not being properly maintained or managed. ~\ 'Ie
positions should be reviewed periodically to ensure that job duties, qualifications, an
compensation are still appropriate, in the last 5 years, the Personnel Division has
conducted reviews of only 22 percent of the 1,500 classifications In State government.
According t DOA officials, regular classification reviews were discontinued because
there was not ough funding to implement salary upgrades which often result from
such reviews. Ho ver, failure to maintain the system hampers the State's recruitment
efforts, and results in' appropriate employee compensation. While DOA is considering
significant changes to he classification system, their efforts may be premature,
particularly until an assess ent of needed changes is developed and funding issues are
addressed.
DOA Should Improve Efforts To
Inform Decision Makers On Salary
(see pages 19 through 23)
DOA Needs To More Proactively Manage
Its Employee Health Benefits Program
(see pages 25 through 30)
Although Sti;1te employees are an essential resou e of State government, employee
salaries have not remained competitive. While State sa ries were only 7 percent behind
the market in 1988, lack of salary increases has now wide d the gap to over 22 percent.
As a result, State agencies have difficulty attracting a d retaining high-quality
employees. While DOA is responsible for presenting salary commendations to the
Legislature, it has based these recommendations on available nding rather than
presenting the results of its analysis to policymakers and allowing the to determine the
course of action. As the State's expert on compensation, DOA needs 0 provide the
Governor and Legislature with timely, objective, and comprehensive rep detailing
various alternatives.
The Personnel Division needs to more proactively manage State employee health care
insurance benefits. In 1992, in an effort to meet the Governor's demand that there be no
increases in State fu